Norada Real Estate Investments

Projected Interest Rates in 5 Years: How Much Will Rates Rise?

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Projected Interest Rates in 5 Years

Unless you have a crystal ball that can predict the future, it's impossible to know how much interest rates will rise in the coming five years. Pent-up demand, especially for travel, means inadequate supply to chains still rocked by COVID-19, but Russia's invasion of Ukraine and energy insecurity have raised oil and gas prices.

It implies central bankers are uncertain how successful monetary tightening will be against many mitigating factors, with rate rises potentially adding pain without resolving rising prices. Interest rates are projected to rise in the near term as policymakers try to ward off 40-year-high inflation, but they are expected to peak soon thanks to expectations of a recession in the US.

The OECD predicts that inflation would decline steadily over the next 18 months, reaching 5.7% by the end of this year and 2.8% by the end of 2023. Capital Economics thinks inflation will reach 2.6% by 2024, while the CBO anticipates inflation will average 2.4% between 2026 and 2031.

In a 27 July note from Barclays shared with Capital.com, analysts Joseph Abate and Jonathan Millar said interest rate movements over the next year could be volatile and depended on the level of bank reserves through its schedule of quantitative tightening (QT), the process of taking liquidity and demand out of the market.

In 2022, CBO expects inflation to remain high due to factors that keep supply growing slower than demand in product and labor markets. CBO expects inflation to exceed the Fed's 2 percent long-term goal in 2023 before approaching it in 2024. The agency anticipates 2022 short-term interest rates to rise substantially. In 2022, long-term interest rates are predicted to rise significantly from their 2021 lows. After 2022, CBO forecasts short- and long-term interest rates to climb slower.

In 2022 and 2023, the Federal Reserve is expected to rapidly increase the target range for the federal funds rate to reduce inflationary pressures in the economy. In CBO’s projections, the interest rate on 3-month Treasury bills follows a similar path, rising to 1.4 percent by the fourth quarter of 2022, 2.3 percent by the fourth quarter of 2023, and 2.6 percent by the fourth quarter of 2024.

The Federal Reserve is expected to reduce the target range for the federal funds rate in 2025 to counteract the drag on economic growth stemming from the higher individual income tax rates that take effect at the beginning of 2026 under current law. Accordingly, in CBO’s projections, the 3-month Treasury bill rate will fall to 2.4 percent by the fourth quarter of 2026.

Due to rising short-term rates, long-term Treasury bond interest rates are likely to grow until 2026. Long-term interest rates are partially determined by investors’ expectations about the future path of short-term interest rates. Potential purchasers of long-term bonds weigh those bonds’ yields against the yields from purchasing a series of shorter-term bonds (for example, purchasing a 1-year bond each year for 10 years).

In order to sell all long-term bonds, the yield rises when short-term interest rates rise. As the Federal Reserve tightens monetary policy, the interest rate on 10-year Treasury notes will climb from 1.5 percent in the fourth quarter of 2021 to 2.7 percent in the fourth quarter of 2022, indicating a higher future path for short-term interest rates. After 2022, 10-year Treasury note interest rates are expected to rise steadily to 2.9 percent in the fourth quarter of 2023 and 3.1 percent in 2024.

Part of the increase in interest rates on long-term Treasury securities through 2026 is attributable to an increase in term premiums. A term premium compensates bondholders for long-term bond risk. In the years before the pandemic, investors' concerns about poor global economic growth and demand for long-term Treasury securities as a hedge against unanticipated inflation fall drove term premiums to historically low levels.

CBO predicts those variables to fade, raising term rates. It anticipates that the Federal Reserve's reduction in its portfolio of long-term assets will raise interest rates on long-term Treasury securities for two reasons:

First, shrinking its balance sheet indicates to investors that the Federal Reserve is dedicated to tightening monetary policy and, as a result, is likely to continue rising the federal funds rate target range, enhancing investors' expectations about the future direction of short-term interest rates.

Second, the Federal Reserve's technique for shrinking its balance sheet tends to reduce demand for long-term bonds more than it does for short-term ones. All else being equal, the strategy results in lower long-term bond prices and higher yields.

Mortgage Interest Rate Projections for 5 Years

Projected Interest Rates in 5 Years
Image Source: FreeImages‍

If you're planning on mortgaging your home at least until age 55 and possibly beyond, you should start looking into how much interest rates are likely to go up in the coming decade. If you don't already understand how much interest rates affect your wallet, this article will explain everything you need to know about projected interest rates in the next five years and what that means for you as a borrower.

Mortgage interest rates determine the interest you pay on your home loan. When you get your house loan approved, the lender will usually project what interest rates are likely to be and then you can decide if you want to go with that interest rate or some other available option. But when you ask what is the interest rate, you're not just looking at what rate is listed on the contract, you're also taking into account what rate is likely to go up in the future and what will happen to rates if new laws are passed.

Mortgage interest rates follow the same pattern as the stock market does, with periods of high profitability followed by periods of low profitability. As was the case with stocks, homeowners who take out a mortgage are at a particular advantage, as they can lock in a higher rate of return by waiting until the market is profitable again. If the market performs poorly for a prolonged period of time, homeowners are stuck with high-interest rates. That's not good for you or your house price.

A number of factors can affect your mortgage interest rate, including the total amount of your mortgage loan, the mortgage terms, and the health of the housing market. According to algorithm-based forecasting service Longforecast's interest rate projections, the 30-year mortgage rate in the United States, which is strongly tied to the Fed's base rate, is forecasted to reach 17.81% by November 2026, a significant increase from the present rate of roughly 7.04%.

Mortgage Interest Rate Projected Forecast 2022

According to Longforecast, the 30 Year Mortgage Rate forecast at the end of the year 2022 is projected to be 7.62%.

30-Year Mortgage Rate forecast for October 2022

  • Maximum interest rate 7.13%, minimum 6.71%.
  • The average for the month is 6.92%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 6.92%.

30-Year Mortgage Rate forecast for November 2022

  • Maximum interest rate 7.41%, minimum 6.92%.
  • The average for the month is 7.11%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 7.19%.

30-Year Mortgage Rate forecast for December 2022

  • Maximum interest rate 7.85%, minimum 7.19%.
  • The average for the month was 7.46%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 7.62%.

Mortgage Interest Rate Predictions for 2023

According to Longforecast, the 30 Year Mortgage Rate will continue to rise further in 2023. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 11.87%.

30-Year Mortgage Interest Rate Forecast for January 2023

  • Maximum interest rate 8.32%, minimum 7.62%.
  • The average for the month is 7.91%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 8.08%.

30-Year Mortgage Interest Rate Forecast for February 2023

  • Maximum interest rate 8.53%, minimum 8.03%.
  • The average for the month is 8.23%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 8.28%.

30-Year Mortgage Interest Rate Forecast for March 2023

  • Maximum interest rate 8.66%, minimum 8.16%.
  • The average for the month 8.38%.
  • The 30 Year Mortgage Rate forecast at the end of the month 8.41%.

30-Year Mortgage Interest Rate Forecast for April 2023

  • Maximum interest rate 9.18%, minimum 8.41%.
  • The average for the month 8.73%.
  • The 30 Year Mortgage Rate forecast at the end of the month 8.91%.

30-Year Mortgage Interest Rate Forecast for May 2023

  • Maximum interest rate 9.18%, minimum 8.64%.
  • The average for the month 8.91%.
  • The 30 Year Mortgage Rate forecast at the end of the month 8.91%.

30-Year Mortgage Interest Rate Forecast for June 2023

  • Maximum interest rate 9.72%, minimum 8.91%.
  • The average for the month 9.25%.
  • The 30 Year Mortgage Rate forecast at the end of the month 9.44%.

30-Year Mortgage Interest Rate Forecast for July 2023

  • Maximum interest rate 10.31%, minimum 9.44%.
  • The average for the month 9.80%.
  • The 30 Year Mortgage Rate forecast at the end of the month 10.01%.

30-Year Mortgage Interest Rate Forecast for August 2023

  • Maximum interest rate 10.92%, minimum 10.01%.
  • The average for the month 10.39%.
  • The 30 Year Mortgage Rate forecast at the end of the month 10.60%.

30-Year Mortgage Interest Rate Forecast for September 2023

  • Maximum interest rate 11.58%, minimum 10.60%.
  • The average for the month 11.01%.
  • The 30 Year Mortgage Rate forecast at the end of the month 11.24%.

30-Year Mortgage Interest Rate Forecast for October 2023

  • Maximum interest rate 12.03%, minimum 11.24%.
  • The average for the month 11.55%.
  • The 30 Year Mortgage Rate forecast at the end of the month 11.68%.

30-Year Mortgage Interest Rate Forecast for November 2023

  • Maximum interest rate 12.51%, minimum 11.68%.
  • The average for the month 12.01%.
  • The 30 Year Mortgage Rate forecast at the end of the month 12.15%.

30-Year Mortgage Interest Rate Forecast for December 2023

  • Maximum interest rate 12.23%, minimum 11.51%.
  • The average for the month 11.94%.
  • The 30 Year Mortgage Rate forecast at the end of the month 11.87%.

Also Read: Mortgage Interest Rates Forecast 2022 & 2023

Mortgage Interest Rate Projected Forecast 2024

According to Longforecast, the 30 Year Mortgage Rate will continue to rise further in 2024. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 13.9%.

Month Low-High Close
Jan-24 10.05-10.97 10.65
Feb-24 10.14-10.76 10.45
Mar-24 10.33-10.97 10.65
Apr-24 10.65-11.31 10.98
May-24 10.98-11.66 11.32
Jun-24 10.79-11.45 11.12
Jul-24 10.99-11.67 11.33
Aug-24 11.33-12.22 11.86
Sep-24 11.86-12.94 12.56
Oct-24 12.46-13.24 12.85
Nov-24 12.65-13.43 13.04
Dec-24 12.79-13.59 13.19

30-Year Mortgage Interest Rate Projected Forecast 2025

The 30 Year Mortgage Rate will continue to rise further in 2025. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 16.25%.

Month Low-High Close
Jan-2025 15.37-16.33 15.85
Feb-2025 15.05-15.99 15.52
Mar-2025 15.26-16.20 15.73
Apr-2025 15.16-16.10 15.63
May-2025 15.36-16.30 15.83
Jun-2025 15.53-16.49 16.01
Jul-2025 15.11-16.05 15.58
Aug-2025 15.36-16.30 15.83
Sep-2025 15.58-16.54 16.06
Oct-2025 15.32-16.26 15.79
Nov-2025 15.60-16.56 16.08
Dec-2025 15.76-16.74 16.25

Mortgage Interest Rate Projected Forecast 2026

The 30 Year Mortgage Rate will continue to rise further in 2026. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 17.81%.

Month Low-High Close
Jan-2026 15.72-16.70 16.21
Feb-2026 16.21-17.25 16.75
Mar-2026 16.30-17.30 16.8
Apr-2026 16.11-17.11 16.61
May-2026 16.40-17.42 16.91
Jun-2026 16.28-17.28 16.78
Jul-2026 16.57-17.59 17.08
Aug-2026 16.75-17.79 17.27
Sep-2026 17.27-18.41 17.87
Oct-2026 17.71-18.81 18.26
Nov-2026 17.28-18.34 17.81

It should be noted that analysts' and algorithm-based projections can be incorrect. Interest rate estimates should not be utilized in place of your own study. Always conduct your own research. Furthermore, never invest or trade money that you cannot afford to lose.

Why Should You Care About Projection of Interest Rates?

The higher the interest rate, the less attractive the opportunity to borrow money at that rate is for you as a homebuyer. As a result, it could make more sense to borrow at a lower rate, especially if you have a modest amount to spend on a home and are looking for a low-interest loan. If you are running behind on payments and have a limited amount of equity, a higher interest rate could make you borrow money from your workers' compensation fund or a government program that provides short-term loans.

It could also mean higher insurance costs or a higher cost of living once you move in. If you have money to invest and would instead put that money in something that earns more interest than a mortgage, you should know that rates on savings accounts and mutual funds are likely to go up as well, not down.

How Much Interest Will You Pay?

This is one of the most important factors to keep in mind when you're looking at projected interest rates. It is not just the price of the mortgage that is important – it is the interest rate you pay on every dollar you borrow. If you are refinancing an existing loan, the amount you will be paying will depend on your current interest rate and the total amount of your loan. If you are buying a new house, your interest rate will be lower than if you are refinancing an existing home as that is the type of loan we refer to as a ” cash-out refinance.”

What Are Other Factors That Affect Your Payment?

When you compare interest rates for different cities, you are ignoring other factors that could affect your monthly payment. For example, if you are refinancing an existing loan and are in a city where house prices are low, you will pay less interest than if you were in a city where house prices are higher. These other factors can include taxes, insurance, building costs, and utilities.

Conclusion

When it comes to the future of mortgage interest, we don't know exactly what will happen. That is why it is important to get a feel for what the projected rates are so you can plan ahead and decide if any of these rates are right for you and your financial situation. If you are currently working with a lender and are interested in switching providers, you should know that most lenders are required to give you 30 days' notice before changing rates. Even then, you will only be given a 25% discount on the new rate if you want it.

Sources:

  • https://www.cbo.gov/publication/58147
  • https://capital.com/projected-interest-rates-in-5-years
  • https://longforecast.com/mortgage-interest-rates-forecast-2017-2018-2019-2020-2021-30-year-15-year
  • https://www.noradarealestate.com/blog/mortgage-interest-rates-forecast/

Interest Rate Predictions 2023: Will Rates Drop in 2023?

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Interest Rates Predictions 2023 

As long as core inflation remains significantly above the Federal Reserve's target, the Fed Funds rate is predicted to continue to rise in 2023. The Fed's primary instrument for controlling inflation is its ability to influence interest rates. Based on what it sees in the economy, the Fed can raise or lower its benchmark rate, known as the federal funds rate. The federal funds rate affects how much banks and other financial organizations pay to borrow, which in turn affects businesses and people.

Interest rates are predicted to rise in 2023 inflation is extremely high right now. Fed wants to concentrate on slowing demand. It wants fewer people to buy new automobiles or put down bids on houses, lowering costs. When the Fed raises its benchmark interest rate, all types of financing become more expensive. Mortgage rates rise. Auto loans are no exception. Over time, this helps supply and demand rebalance to bring down core inflation.

The Federal Reserve is doing its share to combat inflation by boosting interest rates. While the Fed's goals are excellent, its actions are burdening consumers by increasing the cost of borrowing money. The Federal Reserve hopes to discourage customers from spending money by hiking interest rates. As a result, the gap between supply and demand can be narrowed, potentially leading to lower levels of inflation. During its last four meetings, the Federal Reserve has raised interest rates by 0.75%.

This strategy could continue until inflation starts to fall. If this occurs in the near future, the Fed may cease aggressive rate hikes in 2023. However, if inflation continues to rise, households may face even higher borrowing costs next year. Fannie Mae expects the Fed to continue raising short-term interest rates. We can expect short-term interest rates to rise above five percent next year, with long-term rates, such as mortgages, even higher.

Fed chair Jerome Powell said that explicitly after the November FOMC meeting, “… incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.” The Fed will have to push the Federal Funds rate up at least five percent. They could succeed with either a long period at five or a shorter period moving up to six percent. Right now they seem poised to keep pushing rates up, but eventually, their models will tell them to just pause and wait for the time lags to work through.

According to the majority of senior academic economists polled by the Financial Times, Feb will raise its benchmark policy rate beyond 4% and keep it there beyond 2023 in order to combat excessive inflation. Nearly 70% of the 44 economists polled between September 13 and 15 anticipate the fed funds rate will peak between 4% and 5% during this tightening cycle, with 20% believing it will need to exceed that level.

Mortgage rates have risen at the fastest pace since the early 1980s. For the first time since 2008, 30-year fixed-rate mortgages hit 6 percent, with the expectation that rates could go even higher later this year. One year ago, they were less than 3 percent. Freddie Mac is a government-sponsored agency charged with keeping mortgage markets liquid. According to Freddie Mac's Primary Mortgage Market Survey, the weekly average 30-year fixed-rate mortgage in the United States was 7.08% in the week of November 10, 2022.

November 10, 2022 30-Yr FRM 15-Yr FRM 5/1-Yr ARM
Average Rates 7.08% 6.38% 6.06%
Fees & Points 0.9 1 0.2
Margin N/A N/A 2.75

Mortgage rates have only risen faster in 1980 and 1981 in the history of the Primary Mortgage Market Survey, which began in April 1971. In 1980 and 1981, however, rates averaged 16% and 18%, respectively. Rates were less than 3% just a year ago. While mortgage rates are not as high as they were in the 1980s, they have more than doubled in the last year. Mortgage rates have never previously doubled in a single year.

Mortgage interest rates have risen in response to a general rise in interest rates throughout the economy, which has been primarily driven by inflation. Inflation rates have remained stubbornly high, prompting the Federal Reserve's Federal Open Market Committee (FOMC) to raise policy rates by 3 percentage points so far in 2022. Market participants anticipate that the FOMC will continue to raise its policy rate this year.

According to Freddie Mac, while the labor market remains strong, the impact of the FOMC's rate hikes earlier this year will be realized with a lag, and while job growth is higher than its pre-pandemic average, it is progressively slowing. This is reflected in implied forward rates for the 10-year Treasury note in the United States, which are flat for the next five quarters. Mortgage rates typically track 10-year Treasury yields, implying that rates should be level given the trend of Treasuries.

However, the disparity between the principal mortgage rate and the 10-year Treasury note has increased in recent months as the mortgage industry adjusts to significantly lower transaction activity and current interest rate volatility. Mortgage rates will moderate over the next year if spreads eventually return to historical averages. Rates are expected to fall from an average of 6.8% in the fourth quarter of 2022 to 6.2% in the fourth quarter of 2023, according to their prediction.

Higher mortgage rates have caused a significant halt in the US housing market, which had been spinning at an unsustainable rate. More homes are on the market, and mortgage applications have dropped to their lowest level since 2016, discounting the initial few weeks of the pandemic. Prices are falling. This may assist the general economy, but it is quickly becoming more expensive for would-be homeowners to buy a home.

Sources:

  • https://www.ft.com/content/22fb1d59-439a-4b87-abf5-1f3eb5e20dbf
  • https://www.fanniemae.com/research-and-insights/forecast/housing-and-interest-rates-continue-suggest-recession-likely-2023
  • https://www.freddiemac.com/research/forecast/20221021-quarterly-forecast-rapidly-rising-rates-declining-demand-driving-housing-market

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