Market-moving news will leave rates different than they were in 2018.  Will they be more or less favorable for mortgage shoppers?

Rising rates aren’t expected to take a breather in 2019.  The same housing agencies that were “spot on” with their forecasts in 2018 are predicting rates in the low to mid-5’s in the new year.

Have you been looking for a good rate on a refinance or home purchase?  Now might be the time to lock in on those rates.

The Stock Market could falter, helping rates:  December was ugly for the stock market.  The Nasdaq officially entered a bear market, defined as a 20% drop from recent highs.  The Dow Jones Industrial Average and S&P 500 indices weren’t far behind.  What’s that got to do with mortgage rates?  A lot.

A high-risk stock market gets investors moving towards safer assets, such as mortgage-backed securities (MBS), upon which mortgage rates are based.  The more money that piles into MBS, the lower rates go.

Falling oil could help mortgage rates:  Expensive oil causes prices for goods and services to rise, meaning inflation occurs.  For example, you pay $3 instead of $2.75 for a gallon of milk because a truck had to spend more on fuel.  Conversely, falling oil creates less inflation pressure and, potentially, downward pressure on interest rates.  Oil is currently in a death spin of sorts.  It’s currently at a 17-month low and down 40% from its October peak.  Inflationary pressures aside, falling oil is an economic barometer.  Oil could be tanking because of lower demand in the face of an oncoming recession.  NO ONE KNOWS FOR SURE.  The fact remains, though, that mortgage rates generally do better when oil prices get hammered.

The Fed calls for slower rate hikes in 2019:  The Federal Reserve is not as confident in the future as it used to be.  In December, it raised rates, but backed off it forecast to hike rates three additional times in 2019.  Now, it projects just two increases.  The announcement cast a shadow over what was a very sunny outlook for the new year.  the Fed raises rates when it’s confident about the economy, and slows hikes in the face of a downturn.  Basically, the most revered economic authority on the planet said, “The U.S. economy won’t be as strong as everyone thought.”  That sent stocks lower, and mortgage rates lower too, as investors prepared for a riskier year. 

Will rates continue to drop?  It’s a real possibility.  As of the third week of December, 2018, the Dow had its worst week in ten years, dropping about 7 percent.  The S&P 500 fared even worse.  These types of fallouts light a fire under investors.  Individuals and managed fund leaders seek safer assets.  A go-to asset is mortgage-backed securities.  As mentioned earlier, mortgage rates fall when investors pile into mortgage-backed securities.  It’s feasible that 2019 could provide limited windows in which mortgage shoppers can capture very low rates.

Conventional loan rates: Conventional refinance rates and those for home purchases are still low despite recent increases.  According to Ellie Mae, the 30-year mortgage rate averaged 5.17% in November, 2018.  This is higher than Freddie Mac’s 4.62% average because it factors in low credit and low-down-payment conventional loan closings, which tend to come with higher rates.  Additionally, the most recent Ellie Mae reports shows rate levels before they started dropping.   Lower credit score borrowers can use conventional loans, but these loans are more suited for those with decent credit and at least 3% down.   Fiver percent down is preferable due to higher rates that come with lower down payments.  Twenty percent of equity is preferred when refinancing. 

With adequate equity in the home, a conventional refi can pay off any loan type.  Got an Alt-A, subprime, or high-PMI? A conventional refi can take care of it.  For instance, say you purchased a home three years ago with an FHA loan at 3.5% down.  Since then, home values have skyrocketed.  You refinance into a conventional loan (because you now have 20% equity) and eliminate FHA mortgage insurance.  This could be a savings of hundreds of dollars per month, even if your interest rate goes up. 

FHA mortgage rates:  FHA is currently the go-to program for home buyers who may not qualify for conventional loans.   The good news is that you will get a similar rate – or even lower one – with an FHA loan than you will with conventional. 

While a monthly mortgage rate forecast is helpful, it’s important to know that rates change daily.