Calculating Mortgage Rate Predictions

Mortgage Analysts and Economics Experts currently predict that mortgage rates may rise in the near future. While many Experts believed the same prediction at the end of 2013 – the opposite occurred. So how do they formulate an outlook when it’s obviously so difficult to forecast? Let’s take a look at some of the trends that may have factored into the analysts’ current predictions for rising mortgage rates.

The slight rise in yield on the 10-year Treasury security over the past few months, as well as the rise in the 5-year Treasury yield, coupled with employment growth, may result in a tighter Fed policy this summer. The European Central Bank’s quantitative easing and rate decline in China and India have helped provide necessary confidence in the growth prospects for those countries. Early signs of growth are coming from the Eurozone; the rapid capital inflows that have categorized the past few months will begin to slow, permitting longer term rates to better reflect anticipated movements in the fed funds rate.

Since last month, various groups have revised their outlook for rates across the yield curve, increasing rate outlook for the 3-month and 6-month bills by 6 basis points by the end of the year. This is due to the updated base effects, as rates have slightly risen. For example, Wells Fargo predicts that the 10-year Treasury will climb to 2.45 percent by the end of 2015 and 3.04 percent by the end of 2016.  The 5-year Treasury yield should be slightly under 2 percent at the end of the year, and the 30-year Treasury rate should come in a touch above 3 percent.

The recent base effects of the rate increases along with signs that global growth may begin to steady could result in a decline in capital outflows from slower growth countries. A reduction in capital flows into U.S. Treasuries results in a rise in longer-term rates, aligning with economic fundamentals. Gross domestic product growth should average to 2.7 percent this year and strengthen further into 2016 to 3 percent.