The Reason Mortgage Rates Are Projected to Increase and What It Means for You

<article class="post-2027 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-2027"><span class="entry-date">February 23, 2021</span><div class="entry-header center-block text-center"><h1 class="entry-title">The Reason Mortgage Rates Are Projected to Increase and What It Means for You</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=The+Reason+Mortgage+Rates+Are+Projected+to+Increase+and+What+It+Means+for+You&amp;url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Fthe-reason-mortgage-rates-are-projected-to-increase-and-what-it-means-for-you%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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<p><img alt="The Reason Mortgage Rates Are Projected to Increase and What It Means for You | Simplifying The Market" class="webfeedsFeaturedVisual wp-post-image" decoding="async" link_thumbnail="" loading="lazy" sizes="auto, (max-width: 549px) 100vw, 549px" src="https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160958/20210223-KCM-Share-549×300.jpg" srcset="https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160958/20210223-KCM-Share-549×300.jpg 549w, https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160958/20210223-KCM-Share.jpg 750w" style="display: block; margin-bottom: 5px; clear:both;max-width: 100%;" width="358"/></p>
<p>We’re currently experiencing historically low mortgage rates. Over the last fifty years, the average on a <em>Freddie Mac</em> 30-year fixed-rate mortgage has been 7.76%. Today, that rate is <a href="https://www.simplifyingthemarket.com/2021/02/19/home-mortgage-rates-by-decade-infographic/?a=712984-fa409495d5d70154d03a25e81e9540e2">2.81%</a>. Flocks of homebuyers have been taking advantage of these remarkably low rates over the last twelve months. However, there’s no guarantee rates will remain this <a href="https://www.simplifyingthemarket.com/2021/02/18/will-low-mortgage-rates-continue-through-2021/?a=712984-fa409495d5d70154d03a25e81e9540e2">low</a> much longer.<span id="more-43907"></span></p>
<p>Whenever we try to forecast mortgage rates, we should consider the <a href="https://blog.firstam.com/economics/reconomy-podcast-2021-housing-market-outlook">advice</a> of Mark Fleming, <em>Chief Economist</em> at <em>First American</em>:</p>
<blockquote>
<p><em>“You know, the fallacy of economic forecasting is don’t ever try and forecast interest rates and/or, more specifically, if you’re a real estate economist mortgage rates, because you will always invariably be wrong.”</em></p>
</blockquote>
<p>Many things impact mortgage rates. The economy, inflation, and Fed policy, just to name a few. That makes forecasting rates difficult. However, there’s one metric that has held up over the last fifty years – <strong>the relationship between mortgage rates and the 10-year treasury rate.</strong> Here’s a graph detailing this relationship since <em>Freddie Mac</em> started keeping mortgage rate records in 1972:<a href="https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160934/20210223-MEM-Eng-1.jpg"><img alt="The Reason Mortgage Rates Are Projected to Increase and What It Means for You | Simplifying The Market" class="aligncenter wp-image-43909" decoding="async" height="488" loading="lazy" sizes="auto, (max-width: 650px) 100vw, 650px" src="https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160934/20210223-MEM-Eng-1.jpg" srcset="https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160934/20210223-MEM-Eng-1.jpg 1000w, https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160934/20210223-MEM-Eng-1-400×300.jpg 400w" width="650"/></a>There’s no denying the close relationship between the two. Over the last five decades, there’s been an average 1.7-point spread between these two rates. It’s this long-term relationship that has some forecasters projecting an increase in mortgage rates as we move throughout the year. This is based on the recent surge in the 10-year treasury rate shown here:<a href="https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160932/20210223-MEM-Eng-2.jpg"><img alt="The Reason Mortgage Rates Are Projected to Increase and What It Means for You | Simplifying The Market" class="aligncenter wp-image-43908" decoding="async" height="488" loading="lazy" sizes="auto, (max-width: 650px) 100vw, 650px" src="https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160932/20210223-MEM-Eng-2.jpg" srcset="https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160932/20210223-MEM-Eng-2.jpg 1000w, https://files.simplifyingthemarket.com/wp-content/uploads/2021/02/22160932/20210223-MEM-Eng-2-400×300.jpg 400w" width="650"/></a>The spread between the two is now 1.53, indicating mortgage rates could rise. Actually, a bump-up in rate has already begun. As Joel Kan, <em>Associate VP of Economic Forecasting </em>for the <em>Mortgage Bankers Association, </em><a href="https://www.mba.org/2021-press-releases/february/mortgage-applications-decrease-in-latest-mba-weekly-survey-x277401">reveals</a>:</p>
<blockquote>
<p><em>“Expectations of faster economic growth and inflation continue to push Treasury yields &amp; mortgage rates higher. Since hitting a survey low in December, the 30-year fixed rate has slowly risen, &amp; last week climbed to its highest level since Nov 2020.”</em></p>
</blockquote>
<h4><strong>How high might they go in 2021?</strong></h4>
<p>No one knows for sure. Sam Khater, <em>Chief Economist</em> for <em>Freddie Mac</em>, recently <a href="https://freddiemac.gcs-web.com/news-releases/news-release-details/mortgage-rates-move-0">suggested</a>:</p>
<blockquote>
<p><em>“While there are multiple temporary factors driving up rates, the underlying economic fundamentals point to rates remaining in the low 3% range for the year.”</em></p>
</blockquote>
<h4><strong>What does this mean for you?</strong></h4>
<p>Whether you’re a first-time buyer or you’ve purchased a home before, even an increase of half a point in mortgage rate (2.81 to 3.31%) makes a big difference. On a $300,000 mortgage, that difference (including principal and interest) is $82 a month, $984 a year, or a total of $29,520 over the life of the home loan.</p>
<h3><strong>Bottom Line</strong></h3>
<p>Based on the 50-year symbiotic relationship between treasury rates and mortgage rates, it appears mortgage rates could be headed up this year. It may make sense to buy now rather than wait.</p>
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