Professor John Kenneth Galbraith: "The only function of economic forecasting is to make astrology look respectable." If there was ever any doubt about the truth of that, the spectacularly unanticipated credit crunch in 2007/08 should have allayed it. And, since then, economists, analysts and others have continued to push out forecasts that have proved signally wrong.
Does this mean there's no point in speculating about the future for those rates over the next year or so? No, of course not. Life is full of uncertainty, but smart people try to anticipate what's coming. They may not get it right all the time, but the more they know, the better they can prepare.
Crazy Home Loan Rates
A quick look at Freddie Mac's archive reveals it's been more than five years since monthly average rates for 30-year fixed-rate mortgages (FRMs) topped 5 percent. At one point, at the end of 2012, they reached an all-time low of 3.35 percent. At the time of writing, they're within spitting distance of that at well below 4 percent.
How quickly the exceptional becomes the normal. And how easy it is to forget what "normal" is. In reality, if you look back over the decade before the crisis really hit in 2008, the average annual rate for that flavor of FRM was over 6 percent for seven of the 10 years. In 2000, it was 8.05 percent. Think that's bad? In 1981, the annual average was more than twice that: 16.63 percent, with a high of 18.45 percent in October of that year. It was above 10 percent for the 11 years from 1979 through 1990.
Of course, few, if any, economists expect mortgage rates to rise to those sorts of levels again anytime soon. And they were as exceptionally high as ours today are exceptionally low. But it's important to recognize that the situation we've recently grown used to isn't normal and it's unlikely to be permanent.
When Will "Normality" Return?
Economists talk about the theory of the drunk on the bar stool. You walk into a strange bar, and there's a clearly drunk guy swaying precariously on a bar stool. You think he's bound to fall off any second. But he has another drink, and, although he looks even less likely to retain his perch, he somehow stays upright. This continues: more drinks accompanied by increasingly daring defiance of the laws of gravity. And then, maybe hours later, he finally tumbles with a sickening thud. The point is, you were absolutely right in your initial analysis: it really was inevitable he'd fall off his stool. But there were too many variables for you to calculate the timing correctly.
That's the excuse used by all the so-called experts (including this writer, though he's rarely described in such flattering terms), who for years have been warning that mortgage rates looked set to rise imminently. Time and again that was true, but some variables intervened to keep rates low.
What Experts Forecast for 2016
Fannie Mae and the Mortgage Bankers Association (MBA) both have teams of economists dedicated to researching and forecasting trends in housing, including mortgage rates. Arguably, those economists are among the leading experts in this specialist field, although no doubt they'd be the first to acknowledge the-drunk-on-the-bar-stool syndrome. At the time of writing, their latest forecasts are dated September 2015, and disagree wildly.
The MBA team expects average rates for 30-year FRMs to hit 4.2 percent in the last quarter of 2015, and to be up to 5.1 percent 12 months later. It anticipates fairly straight-line increases through 2016's quarters: Q1 4.4 percent; Q2 4.7 percent; Q3 4.9 percent; Q4 5.1 percent.
Fannie Mae forecasts much smaller and shallower rises, with only 3.9 percent in the last quarter of 2015, rising to 4.0 percent in 2016's Q1, 4.1 percent in Q2 and 4.2 percent in both Q3 and Q4.
Neither team is stupid, and the fact is either could be right (or both could be wrong). Even the Federal Reserve is currently unable to confidently predict when its own rates will rise, and it sets those itself.
That's because interest rates are affected by a wide range of domestic and global economic data and influences, and those can turn on a dime. Right now, some influential voices are predicting a global recession and possibly global deflation. That might see Fannie Mae's forecast of slow increases in rates proved right, or possibly result in stagnant or even lower mortgage rates. Alternatively, the economic storm clouds might blow away as quickly as they gathered, and it could be the MBA team looking forward to bonus season.
Most experts currently expect to see some rises between now and the end of 2016. However, a few reckon it could be a long time before we get back to normal levels. One, Deutsche Bank equity strategist David Bianco, wrote in early October, "We see a better chance of landing men on Mars before a full normalization of nominal and real interest rates, especially 10-year yields, to historical norms."
What to Look Out For
Usually, good economic data see rates rise while poor numbers pull them down. In particular, low unemployment and inflation at around 2 percent are important, because those are the main criteria the Fed looks at when setting its rates. But good numbers concerning gross domestic product (GDP), incomes, manufacturing, consumer confidence and spending, and so on are all likely to see rates rise sooner and faster. Poor ones generally have the opposite effect, as does bad news about foreign economies.
What's going to happen to mortgage rates in 2016? The short answer is nobody can be sure. If you're reading this because you need to make an important decision (time the purchase of a home, perhaps, or decide when torefinance an adjustable-rate mortgage(ARM)) that's deeply unhelpful, or takecash out. But at least you now know the signs to look out for. Greenville's Finest Mortgage Broker can help you figure out what interest rate you qualify for. Sharon Skinner at Anchor Mortgage 864-430-8683
Author:Kim Guest Phone: 864-918-0066 Dated: May 5th 2016 Views: 499 About Kim: ...
With approximately 50 years combined experience, Guest Group brings a wealth of varied experience in both Residential and Commercial Real Estate.
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