Will mortgage rates continue to fall in 2013?

Posted by  on Jan 04, 2013

Q: What's the outlook for mortgage rates in 2013 - are they still headed lower?

A: Mortgage rates have already defied the odds by falling for seven consecutive years, and reaching a new all-time low in the process. While that makes it all the more difficult for mortgage rates to fall any further, they at least seem unlikely to rise by very much in 2013. The following are three key factors that will help determine where mortgage rates go in 2013:

  1. The strength of the economy. While economic growth accelerated nicely in the third quarter, more recent indications are that the threat of the fiscal cliff may have dampened activity toward the end of the year. Since the Great Recession, the economy has been able to manage only sporadic periods of strong growth, and until there is more consistent growth, a sustained rise in mortgage rates is unlikely.
  2. The Federal Reserve. In its last meeting of 2012, the Fed announced that it would continue to buy long-term mortgage-backed and Treasury securities, moves that should help keep mortgage rates low. Furthermore, the Fed pledged to continue its low-interest rate policies until unemployment drops below 6.5 percent, which means today's mortgage rates might be here to stay for a while.
  3. Inflation. Think of inflation as a floor underneath mortgage rates. At just over 3 percent, mortgage rates are already down near the long-term rate of inflation, though a bout of deflation in November raises the possibility that rates could move lower.

If you are planning on buying a house in 2013, the direction of mortgage rates is only one variable you have to keep your eyes on. Housing prices have been recovering lately, so it's important not to delay so much that the market gets away from you. Also, rates may be so low that mortgage lenders have little incentive to take risk when making loans. That makes keeping an excellent credit record a must for any would-be home buyer this year.

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