Mortgage Rates Tumble as One Economist Waves the White Flag
Mortgage Rates Tumble as One Economist Waves the White Flag
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Rates for home loans slumped, another reminder of the “lower for longer” conditions that have dogged financial markets since the 2008 financial crisis.
The 30-year fixed-rate mortgage averaged 4.14% in the May 2 week, Freddie Mac said Thursday. That was down 6 basis points during the week. It snapped a four-week streak of increases for the popular product, the first time it had sustained such a long stretch of gains since last September.
The 15-year fixed-rate mortgage averaged 3.60%, down from 3.64%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.68%, down 9 basis points.
Those rates don’t include fees associated with obtaining mortgage loans.
Fixed-rate mortgages follow the trajectory of the benchmark 10-year U.S. Treasury note. The yield on it and other bonds swooned earlier in the year after the Federal Reserve surprised investors by saying that the case for interest-rate increases had “weakened” because of soft inflation, slower growth, and policy uncertainty.
Then government bonds slid again in March, as fears about slow global growth pushed investors into safe havens. Bond yields fall as price rise.
Freddie Mac’s chief economist, Sam Khater, was a willing participant in MarketWatch’s year-ahead predictions for mortgage rates published last December. Like many analysts, Khater fully expected that 2019 would be the year that financial markets finally returned to “normal,” after years of post-crisis clean-up and unusual one-time events, like political turmoil in 2016 and tax-law changes in 2017.
But earlier this week, Khater threw in the towel and slashed his rate forecast. He now expects the 30-year fixed-rate mortgage to average 4.30% throughout the year, down from his earlier forecast of 5.1% – and also down from the 4.54% averaged during 2018.
In an interview, Khater told MarketWatch that his low-rate view is hard to square with a nagging sense that we’re not at the end of the current economic expansion, as many pundits have believed for some time, but in fact closer to the middle, with room to run.
Between a strong consumer sector, healthy corporate balance sheets, market indicators like the yield curve mostly pointing in the right direction, and supportive policy, “when you wrap it all together it looks good,” Khater said.
“This been the most unloved economic expansion and bull market,” Khater added. “Because of all the negative headlines, it sometimes clouds our ability to look at the data. I think the ghosts of the Great Recession are lingering in our minds. We’re overly cautious and we keep looking for what’s going to wreck this thing.”
Despite all that, the official Freddie forecast is for no Fed rate changes, up or down, in 2019 or in 2020, which is the furthest out Khater and his team have forecast.
The Fed on Wednesday held interest rates steady and gave no indication it was in a hurry to move rates in either direction.
(Economists at Freddie’s sister company, Fannie Mae, have forecast one rate increase in 2019, but haven’t looked ahead to 2020 yet.)
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