Will California Mortgage Rates Go Up or Down During 2021?

Will mortgage rates in California go down, as we move further into 2021? Or will rates begin to rise over the coming months, as the economy rebounds?

These are common questions among home buyers and mortgage shoppers in the Golden State. The truth is no one can answer these questions with complete certainty. But we can examine industry forecasts to get a sense of what might happen down the road.

The short answer: At this stage, it seems unlikely that mortgage rates in California will drop significantly over the coming months. After all, 30-year loan rates hit an all-time record low of 2.65% back in January. Industry watchers believe it’s unlikely they’ll drop that low again anytime soon. In fact, a pair of recent forecasts predicted that 30-year mortgage rates could climb to 3% in 2021 (on average), and possibly higher toward the end of the year.

Here’s Where We Are in Early 2021

California mortgage rates have generated quite a few headlines in recent months. They declined steadily for most of 2020, before dropping to a 50-year record low during the first week of January 2021. Since then, they have crept upward a bit, signaling that the lowest rates might be behind us.

In early January 2021, the research team from Freddie Mac reported that the average rate for a 30-year fixed mortgage loan dropped to an incredibly low 2.65%. That’s based on Freddie Mac’s weekly survey of the mortgage industry. Their survey goes back 50 years, and that was the lowest average for 30-year loan rates.

Mortgage application volume increased at the start of the year, as home buyers in California and nationwide raced to capitalize on those record-low mortgage rates. This is one reason why the California housing market has been so active in recent months, despite the ongoing pandemic and unemployment woes.

But California mortgage rates have increased a bit since hitting that record low. During the first week of March 2021, Freddie Mac reported that the average rate for a 30-year fixed home loan was up to 3.02%.

Will California Mortgage Rates Go Up or Down?

Which brings us back to the question at hand:

Mortgage rate forecasting is an imperfect “science,” because there’s really no way to predict future market conditions with complete accuracy. Of course, that doesn’t stop industry watchers from issuing these forecasts. Let’s take a look at two recent predictions that offer some insight on this subject.

In January 2021, Freddie Mac’s research team predicted that rates would hover around 3% throughout 2021. They expect 30-year mortgage rates in California and nationwide to average 2.9% during 2021, followed by an average of 3.2% in 2022.

A couple of takeaways from this prediction:

• Freddie Mac’s 3% outlook is about where we are right now. When this article was published, in March, 30-year mortgage rates in California were averaging around 3%. So this forecast suggests that rates won’t go up much higher in 2021.
• It also predicts that rates will be higher in 2022 (on average) than they are right now. That’s something worth considering, if you’re in the market for a loan.

In February, the Mortgage Bankers Association (MBA) issued a similar forecast. But they expect rates to climb even higher than what Freddie Mac is currently predicting. According to the MBA’s February 2021 long-range forecast, the average rate for a 30-year fixed mortgage loan in California could climb to around 3.4% by the end of 2021.

To quote their February outlook report: “The 30-year fixed mortgage rate is likely to follow a similar path, increasing to 3.4% by the end of 2021.”

Federal Reserve Maintains the Status Quo

The Federal Reserve has an indirect role in whether or not California mortgage rates will go up or down throughout 2021. While the central bank doesn’t control lending rates directly, their monetary policies do have an indirect effect on borrowing costs for consumers.

And it’s mostly good news on this front, from a borrower’s standpoint.

In their last committee meeting, held in January 2021, Federal Reserve officials announced that they would keep the federal funds rate near zero for the foreseeable future. This is one reason why forecasters expect California mortgage rates to remain fairly low throughout 2021.

But there are other factors at work here as well. There’s a good chance the labor market will continue to improve due to the ongoing vaccine rollout. That and other factors could put upward pressure on mortgage rates as we move into the spring and summer months. So despite Federal Reserve actions, there is a chance California mortgage rates could go up later in 2021 as the economy gradually improves.

Disclaimer: This article includes predictions and forecasts issued by third parties not associated with our company. Such projections are the equivalent of an educated guess and should be treated as such. No one can say with certainty whether California mortgage rates will rise or fall over the coming months.