COULD 2020 BE THE YEAR OF INTEREST RATE STABILITY?
After a year of declining interest rates, experts are calling 2020 the year of stability. Why? Because right now, we’re experiencing fewer economic risks and low inflation. That combo gives the Federal Reserve little reason to shift interest rates in the near future.
Back in 2018, the Federal Reserve raised rates four times. Now Fed watchers expect rates to stay flat in the year ahead.
“The Fed is most likely to do nothing, leaving benchmark rates unchanged,” says Greg McBride, CFA, Bankrate chief financial analyst. “The Fed has set a high bar for raising interest rates, saying inflation would need to rise in a significant and sustained way – which ranks somewhere between the seas parting and pigs flying in terms of likelihood.”
But he adds that even if inflation moves modestly higher, the Fed may still stand pat.
“I see the core inflation rate moving above 2% due to wage pressure in 2020,” McBride says. “But all this will do is get the Fed to repeat the motto about their inflation goals being symmetric around 2 percent.”
However, if the economic outlook worsens, McBride warns the Fed would most likely cut rates even lower.
Mortgage rates to hold steady
Right now, 30-year mortgage rates are staying steady at 3.7 to 4%. According to most economists, the Federal Interest Rate forecast for 2020 is for those rates to remain flat for the whole year. They predict the 10-year Treasury yield – which mortgage rates tend to follow – is likely to remain flat as well. This is excellent news for both home buyers, and for those looking to refinance.
Lower rates encourage a strong housing market, but, still, home buyers may want to figure out the best time to lock in their rate. Experts say do it NOW! If you get moving today, you will definitely benefit from the traditionally robust spring selling season for homes.
Home equity rates predicted to stay flat
Home equity borrowers have already been enjoying low rates since the latest Fed rate cut. A Home Equity Line of Credit, or HRLOC, is typically tied to the prime rate, which moves practically in tandem with the Fed’s benchmark rate. Since the Fed slashed rates three times last year, by a total of 0.75%, the prime rate declined too.
“With the Fed projected to hold interest rates steady, there will be little catalyst for changing home equity rates,” says McBride. “Introductory offers will come and go, and that is what will impact the national average.”
Modest moves in credit card rates
These rates are keyed to the prime rate, too, and are expected to remain right where they are for now. However, certain categories of credit users could see significant changes.
For instance, rates on variable credit cards trended down throughout 2019. They finished the year at 17.34% and should average around 17.4% throughout 2020.
“The average will end the year slightly higher as issuers account for the late stage of the economic cycle, attaching higher margins for consumers with weaker credit profiles in any new product launches,” McBride says.
But low introductory “teaser” rates, including those 0 percent offers for those with good credit, make this an excellent time to open a balance transfer card and save.
Auto loans are expected to remain competitive
Auto loans are a different animal, indeed. While auto rates dipped in 2019, they didn’t fall at the same rate as interest rates did. However, for those with good credit, you have many options when it comes to purchasing a car.
“Competition among banks and credit unions kept a lid on car loan rates when the Fed was raising rates but limited how far they could fall once the Fed started cutting,” McBride says.
That’s why experts predict 60-month new car loans will remain at an average of approximately 4.75%, while 48-month loans likely come in at 5.5% this year. But it all depends on your credit score.
“Higher delinquencies and defaults among subprime borrowers will lead to tighter credit and higher rates for car buyers with weaker credit,” says McBride. “But consumers with good credit will find 2020 car loan rates comparable to 2019, with only slight increases by year-end.”
Savers breathe a sigh of relief
After three cuts in 2019, money savers will most likely catch a break according to the Federal Interest Rate forecast for 2020, and it’s about time. The interest paid on savings accounts, money market accounts and CDs rose in late 2018, then crumbled in mid-2019 due to the Fed chopping interest rates. That means, for now, savers can breathe a sigh of relief with the knowledge that things aren’t worsening.
Even more, consumers can find online bank accounts that pay substantially higher than the average. Montecito and Santa Barbara homeowners can find rates as high as 1.95% from VIO Bank, one of the high-yield online banks.
Vio Bank’s High Yield Online Savings account has one of the top yields around, and all balances receive this Annual Percentage Yield or APY. It also has a low minimum requirement of $100 to open the account. The account has no monthly fee and interest is compounded daily on this savings account. There also isn’t a charge for incoming domestic or international wire transfers.
Since we’re living at a time with uncertainty in the direction of rates, savers should consider a flexible investing strategy. A high-yield savings account is a great way to keep a liquid account while taking advantage of time deposits such as CDs to lock in some yield.
Personal loans should hold steady
The average cost of a personal loan ticked a bit higher in 2019, closing out the year at around 11%. But keep in mind, the most relevant piece of information needed to secure personal loans is your credit score, which plays a huge role in determining the rate you’ll pay, along with the amount you’re borrowing and your annual income. In other words, your specific situation and risk profile drive rates here.
While borrowers should expect the average rate to remain the same, safer borrowers may enjoy rates that are substantially lower than the average. Expect lenders to become more discerning as the economy nears a top and they separate weaker credit profiles from stronger.
Montecito and Santa Barbara homeowners keep informed about which way the economic winds are blowing in the future to take advantage, or at least minimize any negative impact on their financial portfolio. It’s important to talk to your tax expert or money manager to make sure they’re taking advantage of the economic cycle with an expansion that’s now a decade old.
And remember, while the Fed can keep a recession at bay by lowering rates now, it can’t do that forever. What goes up, must come down. The important thing is to make sure your portfolio is in excellent shape when it does.
If the Federal Interest Rate forecast for 2020 rings true, NOW is a great time to list your home. Just give me a call at +1 805-886-9378 or email me at Cristal@montecito-estate.com and I’ll happily add your home to my portfolio of fine properties. I also work with buyers who are looking for the perfect new home in the area.