Fannie Mae’s Outlook: Mortgage Rates to Hit 6.30% by Year-End
Welcome to Fannie Mae’s Outlook: Mortgage Rates to Hit 6.30% by Year-End, where we dive into the latest predictions for the future of mortgage interest rates. Fannie Mae, the government-sponsored enterprise that provides liquidity to the housing market, recently released its economic and housing outlook report for 2021. The report includes projections for mortgage rates and other economic indicators, giving us insight into what we can expect in the coming months. In this article, we’ll take a closer look at Fannie Mae’s predictions for mortgage rates and what factors are driving these projections.
The Current State of Mortgage Rates
Before we delve into Fannie Mae’s outlook, let’s first take a look at where mortgage rates currently stand. As of May 2021, the average 30-year fixed-rate mortgage (FRM) stands at 2.97%, according to Freddie Mac’s Primary Mortgage Market Survey. This is a slight increase from the record-low rates seen throughout 2020, but still historically low. So why are rates expected to rise in the second half of the year?
Fannie Mae’s Projections for Mortgage Rates
In its latest report, Fannie Mae projects that the 30-year fixed-rate mortgage will reach 3.30% by the end of 2021. This may seem like a small increase, but it’s important to note that this projection is an average for the entire year. According to Fannie Mae, mortgage rates are expected to steadily rise throughout the year and hit 3.20% by the third quarter before reaching 3.30% in the fourth quarter.
Factors Driving the Increase in Mortgage Rates
So what’s causing this upward trend in mortgage rates? According to Fannie Mae, there are a few major factors at play:
The Rollout of the COVID-19 Vaccine
One of the main drivers behind the projected increase in mortgage rates is the successful rollout of the COVID-19 vaccine. As more and more people get vaccinated and the economy begins to reopen, we can expect to see a rebound in economic activity. This will lead to higher inflation which, in turn, will push mortgage rates higher.
The Federal Reserve’s Monetary Policy
The Federal Reserve plays a key role in setting interest rates, including mortgage rates. As the economy continues to recover, the Federal Reserve may start to pull back on its monetary stimulus measures, which could contribute to higher mortgage rates.
Low Housing Inventory
The inventory shortage in the housing market is also putting upward pressure on mortgage rates. With low inventory, demand for homes remains high, driving up home prices. As home prices rise, lenders may increase mortgage rates in response to the higher risk of lending for these more expensive homes.
The Impact on Homebuyers
For potential homebuyers, the projected increase in mortgage rates means that securing a home loan could become more expensive in the coming months. For example, a $300,000 loan with a 3.30% interest rate would result in a monthly mortgage payment of $1,320. The same loan with a 2.97% interest rate would result in a monthly payment of $1,268 – a difference of $52 per month, or $624 per year.
While this may not seem like a significant increase, it could make a difference for some homebuyers, especially when combined with rising home prices. So if you’re in the market for a home, it may be wise to act sooner rather than later to lock in a lower interest rate.
Final Thoughts
While no one can predict the future with complete accuracy, Fannie Mae’s projections for mortgage rates to hit 6.30% by year-end are an important reminder to be prepared for potential rate increases. Whether you’re in the market for a new home or considering refinancing, keep these projections in mind and stay up to date on market trends to make informed decisions about your mortgage. And as always, be sure to consult with a trusted mortgage professional for personalized guidance tailored to your individual situation.
