What Might Mortgage Rates Look Like Next Year?

In 2020, buyers got a big boost in the housing market as mortgage rates dropped throughout the year. According to Freddie Mac, rates hit all-time lows 12 times this year, dipping below 3% for the first time ever while making buying a home more and more attractive as the year progressed (See graph below):

Will Mortgage Rates Remain Low Next Year? | MyKCM

When you continually hear how rates are hitting record lows, you may be wondering: Are they going to keep falling? What should I tell clients who believe rates will get lower?

The Challenge with Waiting

The challenge with waiting is that someone can easily miss this optimal window of time and then end up paying more in the long run. Two weeks ago, mortgage rates ticked up slightly. Sam Khater, Chief Economist at Freddie Mac, explains:

Mortgage rates jumped this week as a result of positive news about a COVID-19 vaccine. Despite this rise, mortgage rates remain about a percentage point below a year ago.”

While rates are still substantially lower today than they were one year ago and some aspects of the economy continue to strengthen, there’s a very good chance interest rates will rise again. Several top institutions in the real estate industry are projecting an increase in mortgage rates over the next four quarters (See chart below):

Will Mortgage Rates Remain Low Next Year? | MyKCM

If a client is hoping to wait until next year or later to purchase, Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), forecasts mortgage rates will begin to steadily rise starting next year and through 2023:

Will Mortgage Rates Remain Low Next Year? | MyKCM

Bottom Line

Affirm with your prospective clients that they should not assume mortgage rates are going to stay this low forever. Help them understand the trade off in a higher price but lower rate, and inverse, to make a decision that works for them.

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