Mortgage Rates Q4: What Should You Expect?

With the first three quarters of 2014 completely defying predictions, forecasting what the Fed and market drivers will do is tough business. However, based on current data and trends, it is still possible to make fairly accurate educated predictions. So what will the next three months look like for rates?

Why Haven’t the Rates Increased Yet?

After reaching 14-month lows in August, rates should begin to rise heading into 2015. With the quantitative easing program set to end at the close of October, rates will most likely begin a steady rise up through the end of the year.

While the mere mention of tapering mortgage-backed securities purchased by the Federal Reserve was enough to drive rates up in 2014, putting this into practice has actually had little effect on the rates. There are a few factors that helped to offset the tapering off of quantitative easing and keep rates on the lower side. First, unemployment is still rather high, so rates have been kept low in order to stimulate growth. The nation isn't expected to immediately recover from the economic mess that started last decade, so measures have been taken to ease the economy back to healthier levels. As a result of the recovering economy, the demand for housing hasn’t grown at the pace that was predicted. This in turn led to a lower demand for mortgages, which helped to keep rates down through 2014.

How Will This Change Moving Forward?

Although unemployment and low demand for housing has helped to keep rates down thus far, this trend is changing. The unemployment rate is currently falling and is expected to continue to do so. While unemployment is falling, the economy is growing. Expected to grow at an average of 3.3%, this economic improvement could help drive demand in the housing market as the country gets back to healthier economic levels.

So, combining falling unemployment and an improving economy along with quantitative easing coming to an end, an increase in rates is extremely likely.  The increase could happen quickly, too, as it did when rates spiked in 2014. However, while the jump could happen quickly, rates most likely wouldn’t reach pre-recession levels of 6% for quite a long time.

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