February 15, 2017
February 15, 2017
For the last couple of years, homebuyers have been enjoying record-low mortgage rates. Getting a mortgage is less expensive than it has been in years, thanks to a flagging economy and to low rates in general.
Now, though, there are expectations for something of a turnaround. Since the election of Donald Trump, the average rate on a 30-year fixed mortgage has gone up more than 50 basis points. As of this writing, the average rate is 4.13%, according to Freddie Mac.
As we move into 2017, economists and real estate industry groups are updating their forecasts, since many were caught off guard by the sudden hike in mortgage rates.
What Caused Mortgage Rates to Head Higher?
One of the biggest reasons that mortgage rates are on the rise is due to expectations for policies that will be enacted in the new year. Many expect corporate profits to rise and taxes to be cut. As a result, it’s not that surprising that the cost of borrowing money is heading higher.
As the stock market rises, there are expectations that yields on Treasuries will fall. Mortgage rates are often tied to 10-year Treasury yields. As yields fall (and bond prices go up), mortgage rates could follow suit.
On top of that, there are expectations that the Federal Reserve will announce a rate hike during its December meeting. The Fed Funds Rate doesn’t directly affect mortgage rates, but it can indirectly influence mortgage rates. With so many expectations for higher rates and prices, it’s little surprise that mortgage rates are expected to keep rising in 2017.
Prior to the election, many experts expected rates to remain in the 3.5% to 4.25% range for 2017. Now some economists and industry insiders think that mortgage rates could reach 5% by the end of 2017.
Of course, there is no way to predict with certainty how things will play out with mortgage rates, but it seems as though there are some fairly good indications that they will remain higher through 2017. You might not see the historic lows we have enjoyed in the last few months for quite some time.
What Does this Mean for the Housing Market?
Housing has been picking up in recent years, thanks to low mortgage rates and relatively low prices. And now, things might pick up a little more. Some homebuyers might have been dismayed to see mortgage rates shoot up virtually overnight, but we could still see a spike in buying at the end of the year and beginning of 2017. Homebuyers, worried about where mortgage rates could go in 2017, could be willing to just buy now and lock in before mortgage rates get any higher.
For now, it’s mostly wait and see. We need to see what will happen with the Federal Reserve and see if President Donald Trump has the same effect on the market that President-Elect Trump has had so far.
If the last month or so has been any indication, though, it looks as though mortgage rates are heading higher in 2017.
Send this to a friend