Amid the COVID-19 pandemic, one silver lining for Americans interested in buying a new home has been record-low interest rates on mortgages. But how long will they stay so low?
Recently, rates crept above 3 percent for the first time since last July. And as the economy continues to recover from the effects of the pandemic, that upward trend could continue. However, a handful of financial experts told NextAdvisor (article below) that they don’t expect rates to suddenly skyrocket. Instead, the near-term future is likely to include some moderate gains, but with figures still below historical norms.
For a better idea of what those historical numbers look like, here’s a useful table from Freddie Mac that looks at rates month-by-month over the past 30 years. Back in 2019, before the onset of the pandemic, rates averaged 3.94 percent for the year. In 2018, they were at 4.54 percent.
Robert Deitz, chief economist for the National Association of Home Builders, told NextAdvisor that he expects rates to stay below 4 percent for the next two years. That would make the next two years more advantageous to buyers than the 2018-2019 window. And this will likely mean that demand for new homes will remain high, though a supply shortage could continue to push prices up, which makes affordability a concern.
The biggest problem for home buyers in today’s market is that demand has far outstripped supply. The increased competition for homes has led to bidding wars and rising home prices. While low mortgage rates have played a part in this, don’t expect moderate rate increases to make a dramatic difference. “It may cause the purchase market to downshift from red hot to merely sizzling,” McBride says. Mortgage rate increases could make somewhat of a difference when it comes to deciding whether or not to refinance your mortgage. The unprecedented low rates we had for the past year fueled a boom in refinancing. Rates were low enough to offset the upfront cost of refinancing for many homeowners. But as rates have climbed up, the demand for mortgage refinancing has slowed slightly.