May 2021 Mortgage Rate Forecast: Will Recent Lower Interest Rates Last?

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Spring can be full of surprises, and this season brought a twist in the action – a drop in Mortgage rates. After a steady increase over the past two months, Prices dropped in April.

Lots of people didn’t see it coming. The experts therefore took a closer look at the upcoming financing climate and determined whether previous interest rate forecasts for 2021 need to be reassessed. Your consensus? Don’t expect rates to drop any further in the coming months.

The course outlook for May

At the end of April, the benchmark for 30-year fixed-rate mortgages averaged 3.20 percent, according to Bankrate’s national survey of lenders – the lowest since early March. Freddie Mac says interest rates fell below 3 percent in April (unlike Bankrate, Freddie Mac does not include origination points in his figure). However, Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors, suggests that this rate decline may be an anomaly.

“I didn’t expect interest rates to drop below 3 percent again. But those 2 percent mortgage rates are unlikely to last long, ”she says. “It’s true that for the past three weeks, ten-year government bond yields and mortgage rates have fallen, even though the economy is growing faster.”

Meanwhile, investors are recalibrating their expectations for rising inflation.

“Investors are realizing that inflation will not be a problem in 2021 and that it will not cause the Fed to reassess its low-interest approach anytime soon,” Evangelou said.

Evangelou believes the economy is at a turning point, with expected strong growth in new hires thanks to an increase in rates of other kinds: increased vaccinations and political support. For these and other reasons, she expects the 30-year mortgage rate to rise in May and end at around 3.1 percent before the calendar turns to June.

Bankrate financial analyst Greg McBride, CFA, shares this theory.

“Much of what we’ve seen of better economic data and higher inflation is already priced in, which can be seen in rates stabilizing and even falling in the face of some really strong economic data,” says McBride. “Even if mortgage rates rise again in the coming weeks, they will be much more modest than in the first few months of this year.”

Daryl Fairweather, chief economist at Seattle-headquartered Redfin, is optimistic that the economy will recover to more normal levels sooner than many expected, especially as vaccine adoption expands rapidly and the Biden government announces new plans for recovery spending.

“But there are many factors that could change this trajectory. And while mortgage rates below 3 percent are welcome news for many buyers, I don’t think that will mean record lows in the long run, ”says Fairweather.

Speculation for the summer and beyond

McBride expects mortgage rates to be in the 3 to 3.5 percent range for most of 2021.

“As long as economic expectations evolve – which means a strong recovery and a spike in inflation – there is an upside risk,” he adds. “But with growth expected to be much slower in 2022, it could trigger a pullback sometime in the second half of this year.”

Fairweather is particularly concerned with the inflation perspective.

“This is especially true with the recent price increases and shortages of goods such as Wood. Time will tell if we see more shortages in key products, which could lead to higher inflation, ”she says. “Another point to keep in mind is the state of foreign markets. If our economies fully recover but other countries are still struggling to fight off the virus and get back to normal, I believe we will see global investors put their money in relatively safe American assets, which could actually lower interest rates.

Still, conventional wisdom assumes that a growing US economy is typically accompanied by rising interest rates.

“Mortgage rates will rise rather than fall for the remainder of 2021,” says Evangelou. “The economy is growing faster than expected as Americans get vaccinated and travel again. As consumers spend more, prices rise – which puts upward pressure on prices. “

By the end of the year, she predicts mortgage interest rates averaging 3.5 percent.

That is close to the predictions of other widely observed real estate companies. Fannie Mae and Freddie mac forecast an average 30-year fixed-rate mortgage rate of 3.2 percent for 2021 Association of Mortgage Lenders expects an increase to 3.7 percent by the end of the year.

Best Practices for Borrowers

If you are ready to buy or refinance your home soon – meaning you are eligible for a loan, can afford the monthly housing costs and have a steady income – carpe diem may be your best strategy.

“If you’re ready, now is the time to set your rate. Current mortgage rates are possibly the lowest you can get, ”says Evangelou. “Even so, don’t rush or feel stressed out if you’re financially unwilling to buy or refinance.”

Even if interest rates begin an upward trend, they are expected to remain cheap and historically low for the next several years.

“Mortgage rates are still lower than they were before last summer,” says McBride. “In other words, if someone had offered you today’s price around this time last year, you would have skipped. The bottom line is that interest rates are still very low, and even if they continue to rise, they will still be among the lowest pre-pandemic levels. “

Fairweather is particularly optimistic when it comes to refinancing sooner rather than later.

“If you’ve spent so much time at home in the past year that you don’t want to move, I think you’ve found someone to look after. Now is a sensible time to set and set a lower rate that could put more money in your pocket that can be used for home improvement, groceries, savings or fun experiences, now that the world is opening up a little more, ”says Good weather. “Anyone who waits for interest rates to drop even further will likely be disappointed.”

It helps to put things into perspective with a little bit of context: Note that even if rates move closer to 4 percent in the following months, it is still well below the historical average fixed-rate mortgage rate of 8 percent, noted Evangelou.

When you’re ready to act, don’t settle for the first mortgage deal you see. Shop around and get quotes from at least three different lenders.

“Not everyone offers the same tariff or charges the same fees,” says McBride. “Comparison shopping can save you thousands of dollars.”

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