If you’re buying a home soon, refinancing or thinking of taking out debt consolidation, one of the most important factors to consider is your personal cost of funds- the interest rate on your new mortgage. What we’ll do in this article is to make a few predictions and forecast the general trend of mortgage rates for the next six months.
It’s important to note that our crystal ball is fairly accurate but no one, not even the best of economic forecasters can accurately predict where rates will be in the future. Yet based upon recent trends and economic expectations, we can feel confident about where rates will be in the near term and into summer 2019.
Finally, while we talk about actions the Federal Reserve will take or not take, the Fed doesn’t directly affect your traditional 30 year fixed rate loan. Instead, mortgage lenders take their cues from the Fed and adjust their portfolios accordingly. Conventional fixed rates are tied to either Fannie Mae’s or Freddie Mac’s mortgage bond. And like all bonds, when there is a greater demand for the bond, the yield falls. The drop in yield results in lower mortgage rates.
To forecast where rates might be in the near future, we must also review recent economic data from Q4 of 2018. Overall, we saw job creation and wage gains. More people working also means employers must compete with one another for employees and much of this competition is with higher wages. Employers are then forced to pay their employees more for fear of losing them to another company. In short, it’s a good time to be looking for a job.
As more and more people are hired and wages rise along with them, that puts more money in their pockets and we all know what Americans like to do with money in their pockets- spend it. At least most do. Consumers are a primary driver in economic activity and a strong jobs market and greater hourly earnings create a confident consumer. Historically, consumer spending and a healthy economy can ultimately lead to higher consumer prices. Inflation is a primary concern with the Federal Reserve and one of its main goals is to keep inflation at bay. So far, the new Fed Chair Powell has been doing a pretty good job at that.
At a recent roundtable, Powell was a little more accommodating as it relates to monetary policy. Powell recently said the Fed ‘will be patient’ with rates and sit back and watch how the economy performs over the next few months. The last rate increase by the Fed was in December of last year. Since the Fed meets every six weeks, the next FOMC meeting won’t take place until early February.
That date will also be just after the jobs report for January is released by the Labor Department. This is important as it relates to mortgage rates. Two strong job reports in a row might force the hand of the Federal Reserve sooner than many today expect.
The December unemployment report came in much stronger than expected. The headline number, the actual unemployment rate inched up by 0.2 percent from 3.7 to 3.9 percent. That would indicate the economy is actually softening but instead, the higher rate means more people were returning to actively look for a job instead of being counted as unemployed.
Peeling back the layers in the December jobs numbers showed there were 312,000 new jobs created, much higher than the 177,000 many analysts expected. The average hourly wage gains also showed a healthy increase with the highest wage increase in nearly nine years.
Another important number was the number of new manufacturing jobs created in December. The manufacturing industry posted net job gains of more than 284,000 for the year, the best number in more than 20 years.
While the jobs numbers are extremely important for analysts other bits of economic data are part of the mix. The Purchasing Manager’s Index for example showed some signs of weakening. The Supply Management’s Report on Business for the month of December showed purchasing by manufacturers came in at 54.1 percent. Any number above 50 indicates growth but December came in lower than the 57.0 increase many analysts were looking for. Okay, 54.1 is still a growth indicator but sub-data also showed that supplier deliveries to manufacturers were slower for the month of December. That number is what analysts use to forecast manufacturing and its impact on the economy.
Okay, that’s a lot to chew on. We have strong employment numbers, a Fed which says it’s going to sit on the sidelines for now and a possible slowdown in economic activity. Where will rates go over the next six months?
Higher but only slightly so is our prediction. There seems to be enough data indicating the economy is doing well but other information puts a damper on the possibility of multiple rate increases by the Fed. That tells investors that while the economy is doing well with no real signs of inflation, the stock market should recover recent losses and bond purchasing will weaken, causing mortgage rates to rise.
If you’re thinking of buying a home in the near future, it’s almost a certainty rates will be higher six months from now than they are today. However, keep in mind that mortgage rates are very fluid and change daily, there will be lower dips along the way. But the longer term projections point to higher rates.
Jumbo Mortgage Source specializes in low down payment Jumbo Purchase and refinance loans. Please contact us today with questions by calling the number above, or just submit the Quick Contact Form on this page.