Loan officers hear the question, “What are rates doing
today?” probably more than any other, especially if interest rates are in the
news. Homeowners who are considering refinancing or someone thinking about buying
a home and getting a new mortgage will be rate sensitive. Especially so if they
hear the Fed has lowered or raised rates or left them the same at the last
Board meeting. And loan officers are quick to answer. And the next question
might then be, “What are rates going to do?” That’s where loan officers give
pause, because no one really knows what rates are going to do. There are so
many factors involved that it’s more of an educated guess rather than anything
to do with a crystal ball. But what about mortgage rates well into the future,
say like in 10 years?
Okay, we’ll tackle that one. But it’s really more of looking
back 10 years and comparing then to what might happen in 2027. In August 2007,
the national average for the 30 year mortgage was 6.57%. Today, we’re closer to
4.00%, this according to Freddie Mac’s mortgage rate survey. That’s a drop of a
bit more than 2.50%. Will rates continue to fall by 2.50% or will they rise to
levels seen back in 2007? That’s doubtful. If anything, rates will likely stay
in a relatively tight range. Why? Because the mortgage industry is drastically
different than it was leading up to 2007.
In the early to mid-2000s, mortgage lenders tried to outdo
one another with exotic loan programs. Lenders lowered their standards by
approving loan applications with very low credit scores. They didn’t document
income, employment or assets in the bank. These so-called “toxic” loans
permeated the marketplace to the point where lenders went out of business
because they never verified the borrowers could make the monthly payments.
Borrowers instead relied on “flipping” houses for a quick profit but that
bubble popped in a big way.
Today, such loan programs no longer exist. Instead, loans
issued today follow specific guidelines that require lenders to verify income,
employment, assets and have the borrowers demonstrate an ability to repay a
debt on every single conforming conventional loan issued. That creates
stability in the marketplace. There are external factors such as geopolitical
events that can affect interest rates that can’t be predicted, but that aside,
if we had to take a guess, we’d say rates will be relatively stable over the
next 10 years.