Fannie Mae Predicts ‘Cheap Loan Rates to Remain’

Mortgage financing giant Fannie Mae dropped its mortgage rate forecast for next year about two-tenths of a percentage points from its prior forecast, projecting 30-year fixed rates will remain lower than initially thought, at about 4.3 percent next year.

This will cheapen the borrowing costs for home buyers and refinancers, helping to make home ownership more affordable. However, with the forecasted rate drop, Fannie Mae economists didn’t adjust the forecast for total home sales for 2015.

“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,” says Doug Duncan, Fannie’s chief economist. “We believe that mortgage activity in 2015 will be very similar to 2014.”

But will another year of low rates spur more home buying?

“The relatively lower rates after the spikes of the early 80s did stimulate buying,” says David Crowe, chief economist at the National Association of Home Builders. “This time around, the low rates are still not as low as they [recently] were so the relative advantage is not as great. … [Also] the current situation is much more driven by the availability of mortgage credit than the cost.”

Source: “Fannie Cuts Mortgage-Rate Outlook, But Home Buyers May not Bite,” MarketWatch (Nov. 20, 2014)