Why Mortgage Rates Will Stay Above 6% Through 2025 (And What It Means for Buyers)
Mortgage rates have been on the rise in recent years, with a significant increase in 2021. For buyers, this upward trend in interest rates may seem daunting, especially for those who are planning to purchase a new home or refinance their current mortgage. Unfortunately, this may not just be a temporary situation. Experts predict that mortgage rates will continue to stay above 6% through 2025. In this article, we’ll explore the reasons behind this projection and what it means for buyers in the real estate market.
The Current State of Mortgage Rates
Before we delve into the future projections, let’s first take a look at the current state of mortgage rates. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage was 3.13% in 2020. Fast forward to 2021 and the average rate has risen to 3.18% as of July. While this may seem like a small increase, it’s actually a reflection of a significant upward trend in interest rates.
The COVID-19 pandemic played a huge role in the decrease in mortgage rates in 2020. As the economy struggled, the Federal Reserve lowered interest rates to stimulate borrowing and spending. However, as the economy has started to recover, the Fed has indicated that they will begin to taper off these measures, leading to a rise in interest rates.
Reasons for the Projected Increase in Mortgage Rates
Improving Economy
One of the main reasons for the projected increase in mortgage rates is the overall improvement in the economy. As businesses reopen and people return to work, the demand for goods and services is increasing. This, in turn, leads to inflation, which is a key factor in determining interest rates. As inflation rises, so do mortgage rates.
Strong Housing Market
Despite the challenges brought about by the COVID-19 pandemic, the housing market has remained strong. This is partly due to low mortgage rates, which have enticed buyers to enter the market. However, as mortgage rates continue to rise, this may discourage potential buyers, leading to a decrease in demand for homes. As a result, home prices may stabilize, but this could also lead to a slowdown in the overall housing market.
Increasing Government Spending
The government has also played a role in the projected increase in mortgage rates. In response to the pandemic, the government has implemented several stimulus measures, including increasing spending. This increase in spending leads to higher demand for government bonds, which are closely tied to mortgage rates. As the demand for bonds increases, so do mortgage rates.
What It Means for Buyers
For buyers, the projected increase in mortgage rates has a few implications. The most obvious impact is that it will cost more to borrow money for a home purchase or refinancing. For those who have been planning to buy, this may mean re-evaluating their budget or looking for more affordable homes.
It’s also important for buyers to keep in mind that rising mortgage rates may lead to a decrease in home prices. This could provide some relief for buyers, but it’s important to act quickly as the market may shift towards a seller’s market in the future.
For those who are currently in the process of refinancing, it may be a good idea to complete the process as soon as possible to lock in a lower rate before they continue to increase.
In Conclusion
While no one can predict the future with certainty, all signs point to mortgage rates staying above 6% through 2025. This is a result of a combination of factors, including a recovering economy, a strong housing market, and increasing government spending. For buyers, this means being prepared for a more expensive home buying process and potentially lower home prices in the future. It’s crucial to keep an eye on the market trends and act accordingly to make the most informed decision when it comes to purchasing a home or refinancing a mortgage.
