Mortgage Rate Forecast: Will Conventional Rates Follow VA And FHA Mortgage Rates Below 4%?

30-year mortgage rates keep dropping, defying expert predictions

Today's mortgage rates continue to defy Wall Street's expectations.

For the 14th straight week, 30-year mortgage rates averaged four-and-a quarter percent or better, as the benchmark rate opens this week near a 60-week best. Today's home buyers can afford more home; and, today's existing homeowners have new opportunities to make a refinance.

Rates start the week with downward momentum and many mortgage lenders now quoting rates in the 3s.

Click here to get today's live rates.

Current 30-Year Mortgage Rates Average 4.12%

According to Freddie Mac's weekly survey of more than 100 mortgage lenders, the average 30-year conventional fixed rate mortgage dropped 2 basis points (0.02%) last week to reach 4.12%, on average, nationwide.

Rates are down close to one-half percent since January 1 and have moved to near their lowest levels since June 2013.

In order to lock last week's 4.12% 30-year mortgage interest rate, banks were charging applicants an average 0.6 discount points at closing. One discount point carries a cost of one percent of your loan size such that 0.6 discount points adds $600 in closing costs per $100,000 borrowed.

Freddie Mac's surveyed rates apply to prime borrowers only, where "prime borrower" is defined as a person making a twenty percent downpayment on a purchase; with verifiable income and a reasonable debt-to-income ratio; and, credit scores of 740 or better.

On average, buyers of condominiums and multi-unit homes can expect to receive higher mortgage interest rates than the national Freddie Mac average; as can borrowers who are refinancing an existing mortgage.

Note, though, that last week's 4.12% mortgage rate is an average. Some borrowers receive rate quotes above 4.12 percent, and some receive rate quotes below 4.12%.

Many lenders now quote rates in the 3s.

Meanwhile, it's not just conventional loans for which mortgage interest rates are low.

FHA mortgage rates and VA mortgage rates are also posting one-year bests. Purchasing power is extended, and homeowners are finding it easier to meet these programs' respective Net Tangible Benefit requirements for a refinance.

The FHA Streamline Refinance continues to be popular among FHA-backed homeowners; and the VA Streamline Refinance remains in high demand.

Click here to get today's live rates.

When Do Mortgage Rates Fall Below 4%?

Mortgage rates have been on steady decline since the New Year.

On January 1, the 30-year fixed was north of four-and-a-half percent and appeared headed toward 5%. Since then, however, rates have been dropping. First, rates fell through the first six straight weeks of the year; most recently, they're down through fourteen of the last 19 weeks.

The average 30-year mortgage rate is nearly one-half percentage point lower as compared to the start of the year. It's the opposite of what Wall Street predicted.

Economists and analysts predicted rates would cross past 5% by July. Those predictions now appear dramatically off-base.

As the U.S. economy recovers from last decade's recession, jobs growth has been steady, but slow; GDP lags analyst expectation; and, there is little consensus about whether the American Consumer is "better off".

These factors have helped to boost demand for mortgage-backed securities (MBS), which are the basis of U.S. mortgage interest rates. When demand for MBS is high, mortgage rates tend to drop.

Furthermore, inflation rates are low.

Inflation erodes the value of dollar-denominated assets, a class which includes the aforementioned MBS. When inflation rates rise, then, demand for mortgage-backed securities sinks, which causes MBS prices to drop and rates to climb higher.

Right now, we're seeing the opposite effect.

With inflation rates low, demand for MBS has stayed strong, which has put a lid on rising mortgage rates. Additionally, conflict in the Middle East and fears of a Eurobank default has spurred a bout of safe-haven buying.

Will mortgage rates reach five percent this year, as Wall Street predicted? Maybe they will. But, certainly, no time soon.

Mortgage interest rates are more likely to reach the 3s and that could happen sometime this month. 

Click here to get today's rates.

What Affects Mortgage Rates This Week?

Mortgage rates start the week near 55-week lows, and there is very little economic data due for release. Therefore, look for mortgage rates to move based on the momentum of prior weeks, and geopolitical events abroad.

This week's primary "event" is conflict -- between Russia and Ukraine; and between Gaza and Israel.

Escalation in either region -- especially prolonged ones -- may result in U.S. rates moving lower. This is because, globally, investors seek "safe" assets during periods of uncertainty and war; and mortgage-backed securities are among the safest of all the world's asset classes.

It's a trading pattern known as Flight-to-Quality. When economic or political uncertainty exists globally, mortgage interest rates often improve.

Economically, this week's calendar looks as follows:

  • Monday : Housing Market Index
  • Tuesday : Consumer Price Index; Housing Starts
  • Wednesday : FOMC Minutes
  • Thursday : Jobless Claims; Philadelphia Fed Survey; Existing Home Sales
  • Friday : Fed Chairwoman Janet Yellen Speaks

Markets are more likely to move on momentum and geopolitics than on economic data this week, although Fed Chairwoman Janet Yellen's speech on Friday will center on labor markets, which are a key element in the U.S. economic recovery.

As jobs go, so go mortgage rates so plan for rates to be erratic heading into this weekend.

Get A Live Mortgage Rate Quote

Mortgage rates are dropping. Currently near 60-week lows, purchasing power has reached a high for the year. Plus, millions of U.S. homeowners are now eligible to refinance. Perhaps you are among them.

Compare today's live rates now. Rates quotes are available online for free with no social security number required to get started, and no obligation to proceed whatsoever.

Copyright Full Beaker, Inc. 2014

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