There may not be much movement with mortgage rates in the immediate future. For the short term, you may still see some higher costs, inflationary costs for things like groceries and gas and household items.
I do think prices will stabilize in the intermediate term, maybe later this year. Then I do think that mortgage rates will respond favorably and drop.
I also think that we are headed for a fairly big size recession. The current administration has inherited the results of the previous term’s economy. There has definitely been some economic damage that has been done over the last few years due to the unwinding of COVID.
There has clearly been a significant amount of debt that the country incurred as a result of having to respond to COVID. An example of that would be PPP loans. They were rampant and just about every business that needed money was given money.
At some point they have to pull the punch bowl away from the party. Using Illinois as an example, that COVID money ran out this past year. Conceivably what is to be expected is that taxes will go up. So, you may see people spend less money as a result of it, even though we have a new administration in Washington DC. We are still going to have to pay the price for all of the excesses that occurred in the previous four years.
COVID may have set us up better from a technological standpoint. We may have jumped ahead five to ten years in a matter of one year. However, the pandemic took us backwards economically in many ways because of the lack of interaction and the shutdown of businesses, especially in blue states and in blue cities.
So, I think that you’re going to still see some collateral damage from that. Generally speaking, a slower economy would result in rates dropping. The problem is that the Fed was put into a corner because of such aggressive rate cuts during COVID.
After the last rate drop by the Fed, the bond market actually went the opposite direction and the rate on the 10-year Treasury went up. So, mortgage rates went up as well. I think that showed there was just too much inflation in the system, the monetary system. That goes back to COVID and goes back to the period of time where the government had to ramp up its expenses and issue more paper.
We’re paying for that now. I think rates are what they are at least until the summer for any police home loan. In the short term, I don’t think rates will fall significantly lower than they are right now.
At Police Mortgage we’re doing everything we can to create and offer incentives on home loans for police. We strive to keep our rates at 1% below market. We recognize that the Fed has a hole to dig out of and that we’re going to have to create our own market for law enforcement home loans. If the Fed can get inflation under control, and the economy just happens to slow down, I do think that there is a strong possibility for lower rates on products including law enforcement loans.
But I don’t think we’re going down to 3%. I don’t think we’re going to go back to the rates we saw in the COVID days. I think the Fed overreacted by lowering rates too quickly.
A reasonable level to expect in the intermediate future for a 30-year police home loan may be somewhere in the low to mid-5s. I think that’s a pretty good mortgage market around 5%. I think that’s a strong market. I think that’s a fair market rate.
Keep in mind, when the Fed lowers the federal funds rate, that does not necessarily lower mortgage rates. The federal funds rate is the overnight lending rate for banks to borrow money. It’s important for that rate to be lower, and that ultimately does help the economy, but that’s not going to help the actual consumer buying a home, at least not immediately.
Mortgage rates are predominantly determined by the Treasury market, particularly the 10-year Treasury. I think 2025 is going to be a year of regaining control, as well as defining the narrative of what makes America great, and that isn’t going to be an overnight success.
The closer we get back to some economic equilibrium I think the rates will settle down. Until then, I think right now many home buyers should consider an adjustable-rate mortgage (ARM). If a five-in-one arm gets you below 5% that may be a more prudent option than a 30-year fixed mortgage for police officers.
Those are some of the things that the new generation of home buyers is going to have to get comfortable with. They will need to get comfortable with understanding all of the products that are available and embracing them for the short-term. Home buyers in 2025 should look towards the long-term knowing that rates will likely go down and stabilize but also make prudent decisions for today.
Police Mortgage specializes in conventional mortgages, purchase money transactions, FHA loans, and VA loans. Led by founder and CEO John Aretos, Police Mortgage is known and respected for providing clients with exceptional service, customized terms, quick and easy closings, and low money down options. To learn more about Police Mortgage, call 312-499-8878.
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