What is Your Outlook for Mortgage Interest Rates in 2021?

Question

As a Mortgage Broker, I hear a lot of "expert" opinions about where mortgage interest rates are heading.

I am more curious as to what the word is out there amongst the folks actually buying and selling real estate day in and day out?

Where do you see interest rates headed over the course of 2021? Rising? Falling? Holding Steady?

Does your opinion make you more or less likely to buy Real Estate in 2021? Why?

Bill F. · Answer

I'll co-opt Warren Buffet's answer:

“Charlie and I focus on what's knowable and important. Now, interest rates are important, but we don't think they're knowable.”Trying to answer the question is a fool's errand.

JD Martin · Answer

Rates are going to stay low for a long, long time because there's no real ability to raise them without tanking the economy. I don't know what the tipping point is for rates but I suspect that anything back in the 5%+ range would be trouble for the US economy. I would be seriously surprised if I ever see rates above 6% again in my lifetime, which was a low rate not that long ago.

That's one of the problems when rates get this low. Unless you have significant fundamental changes to your economy, housing and its cousins becomes such a large part of your actual economy that you can't change things without damage. People can barely afford housing now with rates at record lows, and all those who have bought at high prices with record low rates can't afford for rising interest rates to reduce the value of their house without precipitating a mass foreclosure event.

Karl B. · Answer

My opinion is that rates will stay low until the economy is truly strong (not likely) or inflation rears its ugly head (a guarantee).

Of course, the question then becomes when will inflation arrive? I don't think we'll see it in 2021 or 2022 - my guess is 2023 will result in a higher interest rate - and it will be rather drastic as so much money has been printed and will likely continue to be printed.

If they're smart they'll raise the rate ahead of the inflation but I don't think that will happen.

Joe Splitrock · Answer

The rates are low because the Fed is buying an unlimited amount of mortgage backed securities. Mortgage rates go down when there are more buyers of MBS and up when there are less. Since the Fed has unlimited funds and will buy unlimited MBS, that pushes rates down. The Fed has stated they will not change policy until we are on solid ground with economic recovery. That means low rates for the rest of 2021, although probably not record low.

I am not necessarily an expert, but the Fed has openly stated their intent.

Pat L. · Answer

"..If they're smart they'll raise the rate ahead of the inflation but I don't think that will happen...."

never happen...it's purely political convenience to keep them low regardless of the accelerating exponential debt to GDP & little hope of ever paying it off.

Joe Splitrock · Answer

It is also worth pointing out, the Fed doesn't set mortgage rates. The Fed can manipulate mortgage rates down by buying mortgage backed securities. That is what happened back in 2012 to 2014, and stared again in March of 2020 when they went on a buying spree. I am not sure they can continue at this pace indefinitely and even if they keep buying, that alone doesn't hold rates low.

Pat L. · Answer

"..It is also worth pointing out, the Fed doesn't set mortgage rates...."

beg to differ

The Fed definitely can & do influence mtg rates by virtue of its politically injected monetary policy. Given that the Fed has obviously decided to maintain short-term interest rates close to zero (AFR) & continues to "purchase assets' or buy/sell debt securities, along with a very  aggressive injection of liquidity, it will by default force lower mortgage rates.

Admittedly Mtg rates have traditionally track the 10yr Treasury Bills but these are different times. During the pandemic it became even more obvious that the Fed was manipulating credit rates by buying billions in Treasuries & MBS.

On the other side 'price inflation' & the secondary demand for MBS does affect rates, but it has no where near the influence the Fed has & seems indent on continuing.

What is Your Outlook for Mortgage Interest Rates in 2021?

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