You might have seen the headlines: mortgage rates are dropping — and have been for some time. In fact, as of mid-August, they’re actually near three-year lows.

That means refinancing your mortgage or buying a home might be more affordable than ever.

But what’s at work here? Why are rates dropping so low and can you actually expect them to stay there? Let’s look at the bigger picture.

What Influences Mortgage Rates?

Mortgage rates are influenced by a number of external, economic factors — things like inflation, employment, the bond market, housing conditions, and more.

Most recently, trade wars, tariffs, and international economic uncertainty have impacted rates, causing investors to pull back from riskier investments, and put money into safer bets (like government bonds) instead. This increased demand drives down the bond yields that investors are willing to accept. Since the mortgage-backed securities market directly competes with the bond market for investors, mortgage rates must fall too in order to stay competitive.

As Joel Kan, associate vice president of the Mortgage Bankers Association, explains, “Global and geopolitical concerns continued to weigh on rates and markets. Brexit, trade disputes, and slowing global growth continue to be recurring factors causing concern. These pushed investors to safer U.S. assets and caused rates to decline over the past month.”

All in all, factors that can influence mortgage rates include:

  • Inflation
  • GDP
  • Employment and the labor market
  • Wages
  • Monetary policy and Federal Reserve activity
  • The bond market and other investment activity
  • The housing market
  • Treasury yields

With all these influencers playing a role, it’s easy to see why mortgage rates fluctuate so often. That’s why it’s important to lock your rate once you’ve qualified for a good one. This will ensure you keep your low rate even if economic factors force average rates upward.

What Do Experts Predict For Future Mortgage rates?

That explanation probably seemed a little confusing, but don’t worry: You don’t have to be an economic expert to gauge what this all spells for 2019 homebuyers. In fact, most major housing players offer a regularly updated rate forecast that can help you understand where the market’s at and where it’s headed.

Here’s what they predict for 2019 mortgage rates (as of August 2019):

  • Freddie Mac
    • 2019 Q3, 30-year fixed-rate mortgages – 3.9 percent
    • 2019 Q3, 5-year adjustable-rate mortgages – 3.9 percent
    • 2019 Q4, 30-year fixed-rate mortgages – 3.6 percent
    • 2019 Q4, 5-year adjustable-rate mortgages – 3.7 percent
  • Fannie Mae
    • 2019 Q3, 30-year fixed-rate mortgages – 3.7 percent
    • 2019 Q3, 5-year adjustable-rate mortgages – 3.4 percent
    • 2019 Q4, 30-year fixed-rate mortgages – 3.7 percent
    • 2019 Q4, 5-year adjustable-rate mortgages – 3.3 percent
  • Mortgage Bankers Association
    • 2019 Q3, 30-year fixed-rate mortgages – 3.7 percent
    • 2019 Q3, 30-year fixed-rate mortgages – 3.7 percent 

All three organizations have slightly different expectations for how 2019 will finish out, but one thing seems clear: We’ll likely see rates clock in at a much lower point than last year. In 2018, December closed with a 4.64 percent average interest rate, according to Freddie Mac. The average across the entire year was 4.54 percent. We haven’t seen rates reach either of these highs since 2019 started, and according to predictions, we won’t be nearing them anytime soon.

Still, low rates aside, there are other hurdles for the market to jump — namely, the shortage of housing inventory, particularly on the lower-priced end.

As Doug Duncan, chief economist at Fannie Mae explains, “While home price appreciation has largely moderated — particularly compared to the recent past — and demand for modestly priced homes has proven strong and resilient, the lack of affordable inventory continues to cap sales and limit the potential pool of would-be homeowners.”

One Caveat: Your Credit

Mortgage rates might be low on average, but that doesn’t mean everyone can qualify for those bargain-basement rates. The mortgage rate you qualify for on your purchase or refinance loan will depend largely on your credit profile, as well as your loan-to-value ratio and other factors.

If you want to ensure you get the lowest interest rate possible, consider improving your credit before applying for your loan. Generally, the best rates are reserved for those with 740 credit scores or higher.

To boost your score, consider doing things like:

  • Pulling your credit report and alerting the crediting company of any errors you find
  • Paying down some of your debts
  • Settling any collections actions that have been taken against you

Also, there are certain things that won’t play an active role in boosting your score, but will help you maintain — and not work against — your other efforts:

  • Setting up autopay to ensure no due dates are missed
  • Avoiding any new credit cards, loans or new debts

Your credit history/length also plays a big role in your overall score, so just be mindful if you’re thinking about closing out any paid-off accounts.

What Rates Do You Qualify for?

Want to see what mortgage rates you might qualify for right now? Reach out to an Embrace Home Loans team member today.