Mortgage rates likely to remain low as geo-political tension mounts
U.S. mortgage rates remained relatively low throughout 2019, highlighting stability within the market as rates ended the year near historic lows.
According to NerdWallet’s daily rate survey, the 30-year fixed-rate mortgage averaged 3.99% by the end of December, ushering January into another low-interest-rate environment as rates started the new year under 4%.
As we leave 2019 behind, NerdWallet suggests mortgage rates are likely to perform similarly to last year, if not better, over the course of this year. But does recent geopolitical turmoil stand to threaten this stability?
NerdWallet says while rates aren’t likely to climb much higher, they certainly could fall lower, and last week’s rate decline stands as proof.
Last Friday, a U.S. drone strike killed a top Iranian military leader sending American stock markets tumbling and crude oil prices spiking.
As a result, rates on 30-year fixed mortgages fell more than an eighth of a percentage point as investors piled into bond markets in a “flight to safety,” said Mark Goldman, a loan officer with C2 Financial Corp.
NerdWallet says this is because long-term interest rates often fall during times of world instability, and as hostility continues to mount between the two nations, investors are reacting accordingly.
“The rapid escalation of hostilities between Iran and the United States is the embodiment of instability,” NerdWallet writes. “Investors typically respond to global turmoil by buying safe instruments, including mortgage-backed securities that ultimately are guaranteed by the federal government.”
According to NerdWallet, the buying spree often causes bond yields to fall, resulting in cheaper mortgage rates.
Nevertheless, the company warns that unexpected global events can disrupt forecasts, and since the Federal Reserve delivered its rate outlook in early December, three weeks before hostilities with Iran boiled over, there’s still a chance we could see changes after all.
“We don’t know how long the crisis in the Middle East will last, or what will happen. Yes, rates tend to drop in reaction to global instability, but that’s a tendency, not a certainty,” NerdWallet writes. “During a time of conflict, it’s prudent to lock a mortgage rate when you’re quoted an acceptable one, rather than gambling for rates to drop even further.”