Mortgage Rates: what happened to 5%?

As we head into the Fall selling season it is worth pausing to reflect on where mortgage rates stand and what the outlook is. Well the second is easy: we don’t know with any confidence. What we do know is that forecasts of rates hitting 5% or more this year have proved pessimistic despite the improving US economy.

Here’s a chart from the Wall Street Journal of the 30-year Fixed-Rate Mortgage (FRM):

A year ago a Mortgage Bankers Association report stated Mortgage rates forecast to rise to 5.1% in 2014. Well if a week is a long time in politics, as a famous leader once said, 9 months is positively a lifetime.

I highlighted the reasons behind the change in the outlook in this May post Are mortgage rates really going to jump this year?

The geopolitical factors I referred to in May remain Mr.Putin.  This week the European Central Bank cut interest rates and announced a program to buy asset-backed securities, a modest form of the Quantitative Easing the US Federal Reserve has been implementing for several years.

Here are two great charts, of economic growth and inflation, that the Wall Street Journal assembled from official statistics.

Weak Growth in EU


The Eurozone is suffering from weak economic growth and very low inflation. For those of us who lived through the +/-15% interest rates pre-Volcker, it still seems strange both for rates to be as low as they are and for the concern being felt about deflation rather than inflation, at least in Europe.

In my years as a research analyst on Wall Street there used to be a joke that when an analyst’s earnings estimate for one year fell short he would just repeat the same forecast for a year later. It appears that Freddie Mac’s mortgage analyst uses the same technique, as this appeared on Freddie’s website this week:

Source: Freddie Mac

Source: Freddie Mac


I’ll check back in a year to see how Freddie’s forecast fares. In the immediate future at least there seems little reason to expect rates here in the US to change very much.

If you  – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 617.834.8205 or

Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty

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