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2019 Mortgage Rate Recap and 2020 Forecast

Mortgage rates are the heartbeat of the mortgage profession. As the Tennessee Mortgage Bankers Association is the trade association committed to supporting mortgage professionals, we monitor recent data, current rates, and available research that anticipates future trends. This blog is provided to share some perspective based on that information.

At the beginning of 2019, mortgage rates were coming off a ten-year high. Since then, mortgage rates have fallen throughout 2019. There have been several uncertainties throughout 2019 that had a part in mortgage rates dropping including global tariffs, cutting the federal funds rate and the weakening economy/fall of the GDP.

First, the global tariffs that have been imposed have been significant. Tariffs raise prices and reduce quantities of goods and services for U.S. businesses and consumers which has a direct correlation to lower-income, reduced employment and thus, having lower economic output. Tariffs are intended to increase consumption of U.S. made goods by increasing the price of foreign-made products. The on-going battle with other countries of raising tariffs has certainly driven down mortgage rates. Outside investors are rushing to the safe investments of the bond market causing the yield on the 10-year treasury to plummet. Mortgage rates follow that yield very closely.

Next, the federal reserve backtracked this year and started cutting the federal funds rate instead of raising them as they did in 2018. They noted that the implications of global developments for the economic outlook as well as muted inflation pressure were reasons to cut its short-term rate despite the fair economic conditions within the United States. This signals that world economic growth is starting to slow which could be linked to the worldwide tariffs that have been imposed. Other counties including Germany, Japan, and China have all downshifted their rates this year to address the sluggish growth.

Lastly, we will look at the weakening economy and the fall of the GDP. Economic growth slowed further into the third quarter on consumer spending and a sharper contraction in business investments. As the fourth quarter ends, indications are the economy is likely losing more steam as lingering trade uncertainties passes through to slower hiring and private consumption. With the economy slowing, GDP has fallen as well. At the end of 2017, the GDP was 2.80. Throughout 2018, GDP fell to 2.52 and throughout 2019, it has continued to fall to 2.10. Going into 2020, some predictions have the GDP hovering around 1.90. The ideal GDP would be between 2-3%. If the GDP were to fall below 2%, this could be a sign of negative growth which is one strong indicator that the economy could be going into a recession. Negative growth rates are marked by a decrease in real income, higher unemployment and a decline in retail sales. During times of negative growth, wages are increasing, and consumers consider the economy to be stable or improving.

With several uncertainties throughout the world including the highly volatile trade tariffs, a weakening global economy and the FOMC slashing the fed funds rate, mortgage rates should continue to stay relatively flat or even improve as we head into 2020. The biggest question mark is what will happen with the next set of tariffs set to be imposed on December 15 and what the FOMC will discuss after the meetings have adjourned.

Kevin Tuscan
TNMBA Director
Secondary Lock Desk Manager
Mortgage Investors Group

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