Mortgage Rates Will Likely Remain Low, but Who Knows Where They’ll Go?

It’s here! Forgive our excitement, but we’re finally entering the thrilling, peak months of the home-buying season, which is probably our favorite time of the year. But there’s something a bit different this time around. Oddly enough, while prices continue their steady march upward, many home buyers are getting an unexpected bonus: Mortgage rates are lingering at their lowest level in three years.

As of Tuesday, the average rate for a 30-year conforming mortgage nationally was 3.6%, giving consumers almost 6% more buying power than they had at the end of 2015.

But there’s a catch, of course: Only the most highly qualified buyers are getting these loans. With little margin for profit, lenders have become even more risk-averse, so indicators of credit tightness such as the average FICO score have ticked up this year as rates have gone down.

Given weaker economic growth in the first quarter and lingering global economic concerns, the Federal Reserve already seemed unlikely to push aggressive increases in short-term rates this year. (While the Fed’s short-term rate policy doesn’t directly affect longer-term rates like for mortgages, an aggressive policy aimed at driving up short-term rates would increase the chances for higher long-term rates.) After last Friday’s report on April’s weaker level of job creation, the odds of the Fed raising rates in June diminished even further.

And that’s why mortgage rates fell last week and have remained flat since then.

Mortgage rates vary by market around the country. Average 30-year conforming rates are currently lowest—2 basis points below the national average—in Oklahoma, Rhode Island, and Wyoming. (A basis point is 0.01%.) They’re highest in New Jersey, Florida, and Connecticut—5 to 7 basis points above the national average.

The direction for rates for the rest of the summer and into the future remains murky. I’ve surveyed a range of recent forecasts from the Mortgage Bankers Association, Freddie Mac, Fannie Mae, and highly respected macro economists, and I found quite a bit of divergence.

As a general rule, I believe it’s best to go with the average of multiple forecasts. That view would say that the average 30-year rate is likely to remain under 4% throughout the spring and summer and into the early fall. The average forecast sees the 30-year conforming rate ending the year at 4.21%, which would be 12 basis points higher than we ended 2015.

Given how wrong forecasts have been for several years running, I’m more inclined to believe the low end of the range, which is the view best represented by Fannie Mae. Fannie Mae’s most recent forecast pegs the 30-year conforming rate as staying flat just about where we are today through the remaining three quarters of the year.

The most aggressive forecasts see rates gradually increasing from here for an average increase of over 20 basis points per quarter through the end of the year. Those views would mean we’d end 2016 with the average 30-year conforming rate between 4.3% and 4.4%.

One additional aspect of this rate environment that is likely to continue for the rest of the year is the day-to-day volatility in rates. So far this year, rates have moved more than 2 basis points a day on average. Over a single week we’ve seen rates increase by as much as 11 basis points and decline by as much as 15 basis points.

In this type of environment, it will be crucial for would-be buyers or refinancers to stay on top of rates, work closely with mortgage brokers or lenders, and learn about options like locks and float-downs.

We’re likely to see rates remain very attractive throughout the spring and summer, but negotiating for a lock will ensure today’s three-year-low rates don’t get away. Add a lockand a float-down, and you can lock in a specific rate but then float it down if rates move lower before you close.

Given how volatile rates have been this year, there is a good chance that any borrower will see both lower and higher rates from time of application to time of closing—and that’s what makes these options attractive. However, like most good things in life, they come at a price. So weigh the potential gains against the costs with your lender. And get ready to enjoy the summer.

Jonathan Smoke is the chief economist of realtor.com, where he analyzes real estate data and trends to develop market insights for the consumer.