The financial collapse of 2008 has not only changed the way that potential homeowners approach mortgages, but also the way banks make them available as well. The future of the mortgage market was quite hazy following the financial collapse, but has become increasingly clear over the course of the last few years. While the mortgage industry, and mortgage rates in general are never completely predictable, there are some safe bets for the future of the the mortgage market that can help you to plan for the future.
As banks compete for business, and the housing market picks up, you can expect the interest rates of the average mortgage to slowly continue to come down over the course of the next few years. As the economy recovers, more individuals will have the funds available to entertain purchasing a home, which means more mortgages for banks, more safety, and lower rates in the end for the consumer. Each bank will provide different rates depending on the size of the loan and repayment period. In the future, you can expect rates to slowly decline alongside the slow economic recovery that is expected.
Federal Reserve Federal Funds Rate
The mortgage market relies heavily upon the Federal Reserve Federal Funds Rate when making predictions for the future of the industry. This rate is the rate in which the Federal Reserve will loan funds to banks overnight in order to meet obligations when business opens in the morning. These loans are paid back by the banks within 24 hours of the lending. The rate in which the Federal Reserve sets directly affects the new obligations that they are able to take on, including mortgage loans, as well as the interest rates that they set on the mortgage packages that they offer as well.
Future of the Federal Funds Rate
Although the Federal Reserve does not set their future monetary policy in stone, they have been very vocal following the collapse about keeping funds as accessible to banks as possible in order to continue to keep credit flowing openly, allowing loans to be given out by the banks and purchases to be made by consumers, improving the overall economy for everyone. If their recent actions have been any kind of indicator, it appears that they are going to be willing to keep the federal funds rate low for easy borrowing, for as long as need be until the economy recovers. Although this policy can quickly change, there is no indication that change is the direction that the Federal Reserve is heading in.
Housing Market Growth
In recent months, we have seen increased growth in the housing market. Although the recent growth has been nowhere near as substantial as we saw in the years leading up to the 2008 collapse, it is good news to see that the housing market is seeing a slow but steady recovery. The most recent report issued by the Federal Reserve, stated that 10 of their 12 banking districts saw improvement in August and September, accompanied by rising home sales. As the housing market improves, and banks become willing to take on a bit more risk with individual mortgages, you may see rates drop.
In order to accurately predict the future of the housing market, you should pay close attention to the overall economic recovery. When the economy reaches a point of stability, the Federal Reserve will feel more comfortable raising interest rates, which is going to result in higher interest rates for the average consumer.
Although it can be difficult to predict the future of something as large and complicated as the mortgage markets with any degree of certainty, watching policy shifts of the Federal Reserve and overall economic recovery can give you the best idea of when you may see sweeping changes.
Author Bio: Noel Finley works for , a company that gives renter insurance quotes.