During early May, 2014 home loan rates unexpectedly fell even lower. In fact, 30 year fixed rates visited the low 4% range. Surprisingly, shortly before this – 5% mortgage rates were in style. Regardless, Fed Chair Yellen’s tone is “baritone-ishly” low regarding future rate levels. Ironically, all signs pointed to a serious increase in rates in May 2013 according to then Fed Chair Bernanke.
Lower Mortgage Rates Ahead – the Reasons Why
The Feds interest in maintaining lower interest rates is multi-dimensional. However, the primary reason is to maintain economic growth. Several data points have the Fed on high alert and thinking now is not the time to take their foot off the gas. For example, the Fed is putting significant weight on the following:
- Slow domestic economic growth (GDP at a meek 1% increase Q1 2014)
- Weak domestic employment growth
- Slow growth overseas
- Pension funds under-performing
- Housing market not as healthy as it “should” be
These are just a few reasons why rates may go into an even deeper dive in the days/months ahead.
Yells Yellen – “Lower for Longer”
Fed Chair Yellen supports lower mortgage rates for a longer period of time. To simplify, the Fed head feels increased mortgage rates only adds fuel to the fire of our lackluster economy. Instead, supporting our economy (specifically the housing market) by augmented record low mortgage rates is Yellen’s goal. It worked last time, just not well enough yet.
To see rates dive into the 3% range, something “significant” on the national or even international economic stage needs to occur. Rates shirt due to Fed commentary, however technical factors and economic events are giant pieces of the rate puzzle.
By Jeremy House