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Predictions for 2014: Interest Rates Will Increase Significantly

Predictions for 2014: Interest Rates Will Increase Significantly

Most experts are calling for an increase in mortgage interest rates in 2014. However, we believe the increase will be more dramatic than is being projected. We believe rates will be closer to 6% than 5% by year’s end.

The Fed announced last month that they would be pulling back some of their stimulus package which has helped the housing market by keeping long term mortgage rates at historic lows for the last few years. This should come as no surprise as the KCM Blog has been warning of this likelihood over the last several months.

1.8 Interest Rate Projections

Above are the most recent projections of where rates will be at the end of 2014 by the four major agencies. However, we believe that the government is not afraid to shoot right past these levels.

Doug Duncan, chief economist for Fannie Mae, this past summer announced:

“I don’t think the Fed ultimately would be troubled with a 6.5% mortgage rate.”

And Frank Nothaft, Freddie Mac VP and chief economist, at virtually the same time explained:

“As the economy continues to improve, we expect to see continued upward movement in long-term interest rates… At today’s house prices and income levels, mortgage rates would have to be nearly 7 percent before the U.S. median priced home would be unaffordable to a family making the median income in most parts of the country.”

Only time will tell. However, we feel that rates will be in the 5.75-6% range by year’s end.

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5 replies
  1. Anthony
    Anthony says:

    I do not think rates will be that high in Q4 simply because 2014 is an election year. Those at the helm of monetary policy will not want to do anything drastic to disrupt the economy or cause angst amongst the populace with a majority in the U.S. Senate up for grabs. I could be wrong, but I think future Fed Chairwoman Yellen will work to keep rates at current levels for some time.

    Reply
  2. Adam g
    Adam g says:

    Being well below the inflation level and yellen taking chair for bernake has already stated intention of keeping low rates for the next two years and they have been pretty good in doing exactly what they say

    Reply

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