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Economic Forecasts

Long Rates Staying Below 1%

Kiplinger’s latest forecast on interest rates

While the stock market has been rising recently on expectations for better economic times as states start opening their economies, rates on Treasury bonds will likely await actual positive economic developments before rising much. The 10-year Treasury yield has risen only slightly off its record low of 0.5%. While it is not likely to move lower, it should stay below 1% for a while, given how uncertain the progress of the recovery will be once restrictions are lifted on the economy. Short-term rates will likely stay near zero for even longer. The Federal Reserve is not going to raise rates until the economy is close to normal again.

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Average 30-year mortgage rates are likely headed down to around 3% eventually because of the low 10-year Treasury rate. However, they have not fallen as much as would be expected, because of heavy demand for refinancing. Lenders can get higher than normal margins on loans as long as there is heavy demand. Applications to refinance are still more than double last year’s level, although the 30-year rate dropped to 3.24% from 3.28% a week earlier as refinancing applications declined 6%.

Low mortgage rates should help support the virus-slowed housing market this spring by making mortgages easier to afford.

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