Mortgage-finance giant Fannie Mae cut its outlook Thursday for home-loan rates in 2015, but cheap monthly payments may do little to bump up residential sales, experts said.
The federally controlled mortgage buyer’s latest housing-market forecast pegged the rate for the popular 30-year fixed-rate mortgage next year at about 4.3%—a drop of two-tenths of a percentage point from Fannie’s prior forecast for the rate in 2015.
While lower rates translate into smaller monthly loan payments, making homeownership more affordable, Fannie FNMA didn’t adjust its forecast for next year’s total home sales.
“The housing market continues to grind its way upward, but we don’t expect a breakout performance in 2015 as the fundamentals remain somewhat muted,” said Doug Duncan, Fannie’s chief economist. “We believe that mortgage activity in 2015 will be very similar to 2014.”
There are (at least) three remarkable mortgage-market trends that are shaping home sales, and some of them are working against each other. First, rates are super low. The latest weekly reading from Freddie Mac showed that the average rate for a 30-year fixed-rate mortgage recently hit 3.99%—a sixth consecutive week of near-4% readings—far below an average of more than 7% over the past three decades.
“This period of low interest rates is extraordinary,” said Susan Wachter, a housing-finance expert at the University of Pennsylvania.
Second, rates have remained in a fairly narrow band for some time. Over the past three years, the rate for a 30-year fixed-rate mortgage has ranged from about 3.35% to almost 4.49%. If Fannie’s Duncan is right, the market won’t see rates climb much higher next year from recent levels.
But another year of low rates may not have much of a positive psychological impact on prospective home buyers, said David Crowe, chief economist at the National Association of Home Builders.
“The relatively lower rates after the spikes of the early 80s did stimulate buying,” Crowe said. “This time around, the low rates are still not as low as they [recently] were so the relative advantage is not as great.”