Mortgage rate forecast for February 2021: rates remain in the refi sweet spot

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The second month of the year is cold and snowy for millions of Americans. Despite the wintry weather, many can find comfort in warm thoughts of persistently low mortgage rates.

Prices ended at an all-time low in January, according to Bankrate’s national survey of lenders. Mortgage experts expect rates to stay enticingly low on the way into Valentine’s Day and beyond.

Tracking rates in February

Greg McBride, CFA, Senior Financial Analyst at Bankrate, predicts favorable interest rates for borrowers in the coming days and weeks. He gives several reasons.

“After spike in the first half of January, bond yields and mortgage rates will fall slightly in the coming weeks as the reality of angry COVID cases and weak economic fundamentals sets in,” he says.

The reference rate on 30-year mortgage loans is likely to rise, but shouldn’t exceed the 3 percent threshold next month, predicts Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors.

“I assume that the 30-year fixed rate will fluctuate between 2.8 and 2.9 percent in February,” she says. “Households and companies should soon experience more relief. The Biden Administration new stimulus package aims to provide new stimulus checks, improved unemployment benefits, and funding to make it easier for more Americans to be vaccinated. In the meantime, the soon to expire eviction and foreclosure moratoria will probably be extended even longer. “

Later in the year, however, various X-factors could drive interest rates higher.

“If investors expect stronger growth than the market is currently reflecting, interest rates could continue to rise,” warns Doug Duncan, chief economist at mortgage giant Fannie Mae. “Also, another fiscal stimulus could potentially boost growth, and when investors see a possible rise in inflation, they could raise their inflation premium. Both scenarios could lead to higher rates. “

The proposal of the Biden administration First time purchaser tax credit of $ 15,000if waived, rates could also go up as it would lead to higher home demand, Evangelou added.

Forecasts after February

With all this uncertainty, this could be a rocking year for mortgage rates.

“Rates will be volatile in 2021, lowering when there is evidence of economic weakness and rising if there is evidence of vaccination progress to return to normal,” says McBride. “Mortgage rates will fluctuate back and forth around the 3 percent threshold, but will end the year slightly above this mark at 3.1 percent.”

Evangelou reflects this message.

“Mortgage rates should continue to rise later this year. However, I don’t expect a big increase. Remember, interest rates have just hit a new record low, so they should continue to be historically low, ”she says.

Evangelou expects average rates of 3 percent in the first six months of 2021 and 3.2 percent by the end of the year.

Your justification is based on plausible possibilities and assumptions. Note that both employment and inflation will rise over the course of this year. And while the coronavirus vaccine becomes available to more Americans and the stimulus package likely is imminent, reopening more businesses are expected to push prices higher.

“Although inflation has no direct impact on mortgage rates, the 10-year government bond yield, which is an important benchmark for mortgage rates, reacts quickly to movements in inflation. Still, as the data shows, inflation remains subdued and I don’t expect it to be a problem in 2021, ”says Evangelou. “That’s why mortgage rates can rise, but only slightly.”

Several leading real estate companies generally agree with this view. For example, Freddie Mac and Fannie Mae, in their latest mortgage projections, expect the 30-year fixed-rate mortgage rate to average 2.9 percent and 2.7 percent, respectively, in 2021. The Mortgage Bankers Association, on the other hand, is forecasting an average interest rate of 3.4 percent this year.

But it is always wise to put things in the right historical context.

“Mortgage rates have been falling gradually over the past 35 years or so,” says McBride. “While this will not stay that way forever, the weak global economy, aging populations in developed countries, and a flood of savings in growing overseas markets have proven to be a significant slowdown that shows no signs of easing.”

What you can do

The prevailing logic is clear: prices are unlikely to get much lower. So if you have the resources and the motivation to commit to a low interest rate today, why play the football in the hope that mortgage rates break historical bottom later in the game?

“While it is very difficult to predict where prices will go, if you have the budget and you can find a house price that is on your budget, act today if you have the budget,” says Duncan. “If you wait because prices could go further, speculate now about where prices are going. Ask yourself: Can you afford to be a speculator? “

If the Federal Reserve stays true to its word, it will try to Keep interest rates close to zero percent Until 2023, you can expect sustained low mortgage rates during this period.

“Potential home buyers and those seeking refinancing are likely to have access to extremely low interest rates for at least the next few years. They may not be as low as they are now, but very low compared to the historical average, ”says Evangelou, noting that mortgage rates were around 11 percent in the 1990s and around 9 percent in the early 2000s. “If you’re ready now, go ahead and lock yourself up.”

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