Mortgage Interest Rates Could Stay Around 4 Percent in the First Half of 2015, Freddie Mac Says

Freddie Mac released its U.S. Economic and Housing Market Outlook for January 2015 on Tuesday, a “prospectus” of sorts for the U.S. real estate space and the broader economic picture. This month’s report took a look at certain positive variables that could boost the country’s economy, and explained why some of these variables may change in the coming months.

Among the fast facts about this report, Freddie Mac forecasted that mortgage interest rates may stay at around 4 percent for 30-year fixed-rate mortgage products for the March and June ending quarters of 2015, though this is contingent on continued uncertainty in foreign markets, which has forced investors to seek sanctuary into long-term U.S. Treasury bonds. There is currently $361 billion worth of 30-year fixed mortgage agency mortgage-backed securities with a 4.5 percent coupon plus $479 billion with an MBS coupon of more than 4.5 percent.

As many mortgages in those portfolios have interest rates of 5 percent or higher, this could give consumers impetus to take advantage of the current mortgage climate and refinance now at much lower rates.

As mortgage rates have been lower than previously predicted, Freddie Mac observed that the refinance share of total mortgages has gone up by 9 percent, with increased refinance activity being the primary driver. Talking about home price appreciation, Freddie Mac forecasted that this figure would rise by an annualized rate of 3.5 percent in 2015, up 0.5 percent from the previous month’s forecast. And on a broader economic note, Freddie Mac said wage growth may “pick up,” citing separate stats from the National Federation’s Independent Business Index that show small businesses may increase wages to their highest level on record since 2006.

A closer look at the statistics on Freddie Mac’s forecast shows that the government-backed mortgage buyer expects unemployment rates to continue declining in 2015. As of the December ending quarter of 2014, the U.S. jobless rate was at 5.7 percent, down from 6.7 percent in quarter one. Going forward, unemployment should gradually go down to 5.4 percent by year-end, eventually hit 5.2 percent by the end of 2016.

Fixed mortgage rates for 30-year products, on the other hand, are currently at around 3.9 percent, but may go as high as 4.50 percent by the end of 2015, and breach the 5 percent mark in 2016, hitting 5.30 percent or so in the fourth calendar quarter of 2016.

Taking stock of all the “fast facts” or main takeaways listed above, Freddie Mac vice president and chief economist Frank Nothaft said that there are a number of “positive opportunities” waiting for consumers in 2015, but the question would be whether consumers and business could be cognizant of these opportunities and make the most out of them. “The reprieve in interest rates and drop in gas prices should help to spur economic growth,” he added. “Until rates start to rise later in the year, housing markets should respond positively and we anticipate increases in home sales and continued improvement in construction activity. With rates lower at the beginning of the year, we’ll see higher than expected refinance volumes as well.”