Last year’s 3.5% mortgage rates are long gone — and experts say consumers who hold off buying or refinancing homes in hopes that sub-4% interest levels will return could miss out on today’s sub-5% rates, too.
“We think 3.5% rates are in the rearview mirror now,” says Mike Fratantoni, chief economist at the Mortgage Bankers Association. “It’s highly unlikely that we’re going to get back to those levels again.”
But mortgage rates shot up to around 4.4% last summer after the Fed hinted in May at plans to begin winding the Federal Reserve’s Quantitative Easing III program down.
Now, market watchers expect QE3’s phaseout and the strengthening U.S. economy’s increased inflation risks to push mortgage rates to 5% or higher by year’s end.
Fratantoni predicts rates will hit 5% by summer and 5.3% by Dec. 31.
“The U.S. economy is growing again, the Fed is beginning to back off of its very-aggressive policy to lower rates and we have [increasing federal budget-deficit] pressures,” he says. “Given all of that, rates are much more likely to go up than down from here.”
Lawrence Yun, chief economist at the National Association of Realtors, says consumers shouldn’t expect sub-4% mortgage rates to return any time soon unless a “major shock” throws the economy back into recession.
“I think that if people are hoping for some temporary dip in rates, they’ll be disappointed,” says Yun, who forecasts 5.3% rates by late 2014. “I realize that many people have seen colleagues and friends lock in mortgages at record-low rates and are jealous. But for now, those rates are history.”
Market tracker Zillow likewise foresees 5% mortgage rates later this year, but economic research director Svenja Gudell says interest levels should rise slowly enough to give consumers plenty of time to buy or refinance places first.
“I don’t think there’s the need to rush out and buy a house this very second,” she says. “But I’d recommend locking in a mortgage below 5%, because I expect rates to continue rising.”