The Mortgage Bankers Association predicts that average 30-year fixed mortgage rates will rise from 3.7% in the 4th quarter of 2012 to 4.4% by the 4th quarter of 2013. Many experts say that’s completely unrealistic. In fact, Freddie Mac predicts that the average 30-year fixed rate won’t hit 4% all year long! In all honesty, what mortgage rates do or don’t do in 2013 depends on these 3 things:
The Federal Reserve already said Quantitative Easing would stick around until the nation’s unemployment rate dropped below 6.5%. So, until there is major progress made on the jobs front, you can count on mortgage rates remaining low. At last check, the nation’s unemployment rate sat at 7.7%. However, forecasters predict that the recent fiscal cliff deal won’t do anything to help the unemployment picture. In fact, with the expiration of the payroll tax cuts, experts say businesses don’t have much incentive to start hiring. And, when you combine the payroll tax problem with the other higher taxes that businesses are now facing, there isn’t much reason to believe that the unemployment is going to make big strides anytime soon. Just how many jobs would need to be added to meet the Fed’s threshold? At our current rate, American businesses would need to add 356,000 jobs each month for the next three years in order to get the unemployment rate down to 6%. Right now – with our current business regulatory system – forecasters say we’ll be lucky to add 155,000 jobs per month. Unfortunately, as long as unemployment remains high, home buying isn’t going to be a major priority for millions of Americans – simply because they can’t afford it. As a result, mortgage rates will stay low, in an effort to entice the Americans who CAN afford it.
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2. The debt ceiling
Arguing and uncertainty in Washington is never a good thing, and that’s exactly what’s about to happen. When Congress starts to hash out the debt ceiling, the fighting will extend to the economy – mortgage rates included. The economic instability will depend on just how much political mud-slinging and name-calling takes place, but count on seeing rates affected on at least a temporary basis. And, if the debt ceiling becomes a major problem – major enough that the U.S.’ credit rating gets downgraded like many experts expect – expect to see it reflected in the nation’s mortgage rates.
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3. Late February negotiations on Capitol Hill
That’s when lawmakers will have to return to Washington and have to start talking about those two dreaded words all over again… “fiscal cliff”. Until Congress and the President can get a long-term strategy together, don’t expect buyers to be over-the-moon about committing to 15 or 30 years of mortgage payments. After all, they don’t even know what the economy is going to look like six months from now! So, in order to give buyers a little incentive to dip into the pool of uncertainty, mortgage rates will be kept low – just like they were all throughout 2012.
And, unfortunately, the first two things on our list are heavily-affected by how these negotiations go. If Washington can’t come to some kind of resolution (more than just another temporary stop-gap), businesses won’t be motivated to hire a bunch of new people, and the debt ceiling problem won’t get solved.
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