Mortgage Rate Predictions for 2017 Have Been Revised Upward

The Mortgage Bankers Association (MBA), an industry group, recently increased its mortgage rate predictions and forecast for 2017. This was partly a response to the surge in mortgage rates that occurred during the last few weeks of 2016, and is shown in the chart below.

MBA analysts expect that the average rate for a 30-year fixed home loan will climb gradually throughout 2017, perhaps reaching 4.7% by year’s end. That’s up from a fourth-quarter projection of 4.4% in their previous forecast.

Note: At the time this story was published, on New Year’s Eve, 30-year mortgage rates were averaging 4.32% according to Freddie Mac.

Mortgage Chart Shows Rate Spike at End of 2016

Soon after the U.S. presidential election, mortgage rates in the U.S. began a steep upward climb that was still ongoing when this article was published. You can see this trend clearly in the chart below, which is based on the weekly market survey conducted by Freddie Mac.

PMMS Chart Dec. 29
Mortgage rate trends through December 29, 2016. Source: Freddie Mac PMMS.

This chart also shows why economists and analysts have revised their mortgage rate predictions for 2017. Many forecasts were built on the assumption that 30-year rates would start the new year somewhere between 3.5% and 3.75%, which is where they were a couple of months ago. But they’ve now surged well past that range and have crossed into 4% territory, requiring a new set of mortgage rate forecasts for 2017.

Here are the average rates as of December 31, 2016:

  • 30-year fixed mortgage: 4.32%
  • 15-year fixed: 3.55%
  • 5/1-year adjustable (ARM): 3.30%

So that’s where we are right now. Looking forward, here are some mortgage rate predictions for 2017.

MBA’s Mortgage Rate Forecast for 2017

As mentioned earlier, analysts with the MBA expect that home loan rates will rise gradually during 2017. They are not predicting a huge spike like the one we saw over the last few weeks (see chart above), but rather a gradual upward trend.

Here are the Mortgage Bankers Association’s quarterly predictions for average 30-year loan rates.

  • Q1 2017: 4.3%
  • Q2 2017: 4.4%
  • Q3 2017: 4.6%
  • Q4 2017: 4.7%

So during the first quarter of the new year, they expect 30-year mortgage rates to average 4.3%. That’s where we are right now, at the end of December 2016, which means they expect some rate stability over the coming weeks.

Going forward, the industry group forecasts a steady but gradual rise in mortgage rates throughout 2017.

Of course, these are just predictions. No one can predict future interest rate trends with complete accuracy. In fact, at the end of 2015, MBA’s analysts predicted that rates would rise steadily throughout 2016, and that did not happen (though we did see a spike during the last nine weeks of the year).

The point is, you have to take these mortgage rate forecasts with a grain of salt. They are an educated guess based on current conditions, and nothing more.

A Different Outlook from Freddie Mac?

The economists at Freddie Mac — the government-controlled corporation that buys and sells mortgage loans — seem to have a slightly different view for 2017.

In December 2016, their economic and housing research team issued some predictions for mortgage rates. Based on their quarterly forecast, they expect the average rate for a 30-year loan to hover around 4.2% throughout 2017. Though they did say that “Interest rates will gradually rise as the Federal Reserve continues on its path of policy normalization.”

Again, predictions are a tricky business, especially with the kind of volatility we’ve seen lately. The one thing we can say with certainty is that borrowers will encounter higher mortgage rates at the start of 2017 than at the beginning of 2016. The chart above is evidence of this.

Disclaimer: This story contains mortgage rate predictions and forecasts for 2017. Such statements were provided by third parties not associated with our company. As a general rule, the Home Buying Institute (HBI) makes no claims or assertions about future trends within the housing industry.

2016 Mortgage Rate Chart Shows Big Surge

On Thursday, December 15, Freddie Mac reported that mortgage rates rose again in their latest industry survey. But that’s just the tip of the iceberg. As shown in the 2016 mortgage rate chart below, home loan rates in three categories have risen for the last seven weeks in a row and are now at their highest point of the year.

If that weren’t enough to light a fire under would-be home buyers, the Federal Reserve recently announced that it would increase the short-term federal funds rate for only the second time in a decade. Indirectly, this could lead to even higher lending rates in 2017. Borrower beware.

Mortgage Rate Chart Shows Late 2016 Surge

Freddie Mac published the 2016 mortgage rate chart shown below earlier today, along with the results of their latest weekly survey of the mortgage industry.

mortgage rate chart 2016
Mortgage rate chart for 2016. Source: Freddie Mac PMMS

If a picture is worth a thousand words, then this chart speaks volumes. A couple of things will jump out at you right away. The first is the large spike in mortgage rates, shown on the right side of the chart. That surge took place over a six-week period that began in mid-November. You’ll also notice that rates are higher today than they were at the start of 2016.

Mortgage rate chart fast facts:

  • The average rate for a 30-year fixed mortgage loan rose three basis points (0.03%) this week to land at 4.16%. That’s the highest it has been since October 2014.
  • It bears repeating: 30-year mortgage rates haven’t been this high in over two years.
  • The average rate for a 15-year fixed home loan rose to 3.37% this week. It is also at its highest point of the year.
  • Borrowers paid an average of 0.5 points (a.k.a. discount points) in order to secure these rates. This is a common strategy used to reduce total borrowing costs over time.

Not surprisingly, the Mortgage Bankers Association reported a drop in home loan applications yesterday. According to their data, total application volume declined by 4% (on a seasonally adjusted basis) last week from the previous week. Clearly, this “new normal” for mortgage rates is pricing some buyers out of the market, and closing the window of savings for homeowners who are trying to refinance.

As we enter 2017, the mortgage industry will have to adjust to the effects of rising rates shown in the chart above.

Rising Home Prices Add to the Urgency

Surely, home buyers are feeling a sense of urgency right about now. The recent surge in mortgage rates has caught everyone’s attention, lenders and borrowers alike. But that’s not the only concern for buyers. Rising home values are creating a “double whammy” situation by further reducing affordability.

In most cities across the country, home prices rose steadily over the last year. And they’re expected to rise further in 2017, though possibly at a slower pace. According to the real estate data company Zillow, home prices nationwide rose by 6.2% during 2016. Looking forward, the company’s economists expect house values to rise by around 3% in 2017.

The message to home buyers is clear: You might want to think about buying sooner, rather than later.

Disclaimer: This story includes a 2016 mortgage rate chart provided by Freddie Mac. This chart shows averages based on a survey of about 125 lenders across the country. Individual loan rates vary based on a variety of factors, including borrower credit scores, the type of loan being used, etc.

Analysts Predict Mortgage Rates Will Rise in 2017, but Gradually

We’re halfway through October, with the end of the year right around the corner. That means a lot of would-be home buyers are looking ahead to 2017. And many of them have the same question: Will mortgage rates rise during 2017, and if so by how much?

Unfortunately, nobody can predict future mortgage-rate trends with complete accuracy. But that doesn’t stop economists and housing analysts from making predictions. The general consensus among many industry-watchers is that mortgage rates will rise in 2017, but gradually.

Rising Mortgage Rates in 2017?

Reuters recently published the results of a survey of mortgage industry analysts. According to the survey respondents, the average rate for a 30-year fixed mortgage loan is expected to rise gradually in 2017. Thirty-year rates are currently hovering just below 3.5%, according to the latest Freddie Mac market survey published last week. They are expected to climb to an average of 4.08% in 2017, and 4.60% in 2018.

“The tighter U.S. labor market will lead to stronger wage income growth over the coming year. Combined with still-low mortgage rates, income growth will lead to stronger purchase demand,” said Andres Carbacho-Burgos, an analyst for Moody’s Analytics.

So, what factors might lead to rising mortgage rates in 2017? The Federal Reserve’s monetary policy plays a role. Fed officials will meet on November 1, 2016, for one of their regularly scheduled policy discussions. They’ll meet again at the end of December. Many analysts believe the Fed will raise the short-term federal funds rate after their December meeting.

The funds rate is used by banks when transferring money among themselves. While it doesn’t affect mortgage rates directly, it can have an indirect influence by shifting investor demand. In short, when the federal funds rate goes up, mortgage interest rates tend to rise as well. And a growing chorus of voices is predicting this exact scenario as we move into 2017.

MBA Also Expects Rising Rates

A recent forecast from the Mortgage Bankers Association (MBA) also predicted a gradual rise in home loan rates during 2017. Economists at the MBA anticipate that the average rate for a 30-year mortgage loan will rise to 3.7% by the end of this year, and continue inching upward throughout 2017.

Here is their latest forecast for 30-year home loans, issued in September:

  • Q1 2017: 3.9%
  • Q2 2017: 4.1%
  • Q3 2017: 4.3%
  • Q4 2017: 4.4%

But let’s not forget that the MBA made a similar forecast at the end of last year, which didn’t pan out. In December 2015, they predicted that the average rate for a 30-year fixed home loan would rise to 4.8% by the end of 2016. But that doesn’t seem likely, since the current average is around 3.47% (according to Freddie Mac). So you have to view these mortgage rate forecasts for what they are — an educated guess.

The key takeaway here is that most analysts and economists expect mortgage rates to rise gradually, and slightly, during 2017. As a result, home buyers who postpone their purchases until later next year might end up paying more interest on their loans. It’s just another point to consider when laying out your home-buying plans.

Disclaimer: This article contains forward-looking statements from third parties not associated with the Home Buying Institute. We make no claims or assertions about mortgage trends in 2017.

Wells Fargo 3% Down Payment Mortgage Gives FHA Run for Its Money

Not to be outdone by its competitor Bank of America, which announced a 3% down payment mortgage program earlier this year, Wells Fargo recently stated that it too would offer fixed-rate mortgages for first-time buyers with down payments as low as 3%.

This is significant for two reasons: (1) Wells Fargo is the largest mortgage lender in the United States, by volume. So this new program could be extended to a significant number of home buyers nationwide. (2) The 3% down payment falls below the FHA’s minimum requirement of 3.5%.

The fact that this program undercuts FHA is not a matter of chance or coincidence. Bank of America, Wells Fargo, and other lenders with similar offerings are essentially luring business away from the Federal Housing Administration. They’re doing this by offering an attractive and potentially cheaper alternative to the government-insured FHA loans.

The Wells Fargo 3% down payment mortgage has a nifty name too. They call it yourFirst MortgageSM (the italics are theirs). From here on out, I’ll refer to it as “the loan program” for simplicity.

Wells Fargo 3% Down Payment Mortgage

So what does this sexy new loan program offer for qualified first-time home buyers? Here are the specific features and requirements, adapted from a May 26 news release:

Smaller down payment means less money out of pocket.
Borrowers who qualify for the program could obtain a conventional (non-FHA) fixed-rate mortgage loan with a down payment as low as 3%. But borrowers don’t necessarily have to pay it out of their own pockets. According to the Wells Fargo program announcement, the down payment and closing costs “can come from gifts and down payment assistance programs.”

Educational incentives give home buyers a reason to learn.
Wells Fargo wants first-time home buyers to make smart, well-informed decisions about their purchases. To that end, they are offering an education-based incentive. Customers who complete an approved home buyer education course could earn a 1/8-percent interest rate reduction on their loans. The course must be provided by a HUD-approved counselor.

Broader credit and income requirements mean less hurdles for borrowers.
The Wells Fargo 3% down payment program also features “expanded credit criteria.” This means first-time home buyers with limited credit histories (that might have disqualified them in the past) could still qualify for the loan. The company will expand its credit history requirements to include “nontraditional sources, like tuition, rent, or utility bill payments.” Additionally, Wells Fargo said it will consider the income of others who will live in the home, such as family members or renters.

Borrowers must be able to repay the loan, with documents to prove it.
In keeping with the federal government’s fairly new (and sensible) Ability-to-Repay rule, first-time home buyers who use the Wells Fargo 3% down payment mortgage program must be able to demonstrate their ability to repay the debt. This is typically done with bank statements, pay stubs, and other documents that show income and assets. Additionally, the loan must be “fully documented and underwritten,” according to Wells Fargo.

Fewer Barriers for First-Time Home Buyers

These are noteworthy changes to the company’s lending policy, and they could affect a large number of first-time home buyers who otherwise might not qualify for a mortgage loan. The 3% down payment program reduces the upfront expenses associated with a home loan, and it offers broader qualification criteria to bring more borrowers into the program.

According to Brad Blackwell, Executive Vice President of Wells Fargo Home Lending:

“[W]e wanted to provide access to credit and simplify the experience while maintaining responsible lending practices. We partnered with credit experts such as Fannie Mae and Self-Help, an affiliate of the Center for Responsible Lending, to develop an easy-to-understand affordable loan option that gives homebuyers the best offering in the market.”

Trend Watch: Conventional Mortgage Loans With 3% Down Payment

In the years following the housing crisis, there weren’t very many lenders offering conventional mortgage loans with 3% down payments. But that has changed. Today, an increasing number of lenders are peddling loans with down payments as low as 3%.

This is largely the result of recent changes within the secondary mortgage market. Fannie Mae and Freddie Mac will now purchase conventional mortgages with loan-to-value ratios as high as 97%. Conversely, that means the home buyer / borrower can make a down payment as low as 3% on such a loan.

Conventional Mortgages With 3% Down: Two New Programs

Toward the end of 2015, Freddie Mac (one of the two “government-sponsored enterprises,” or GSEs, that buy and sell mortgage loans) announced it would begin purchasing conventional mortgage products with a loan-to-value ratio up to 97%. In the past, it was rare for the company to acquire such loans.

This is a major shift since Freddie Mac’s guidelines tend to “trickle down” to the primary mortgage market in general. Lenders tend to originate mortgage loans that fall within the purchasing parameters of Freddie Mac and/or Fannie Mae, so that they can turn around and sell their loans to the GSEs.

According to a company bulletin that announced the change, Freddie Mac is broadening its parameters in order to “help expand access to mortgage credit.” That’s mighty benevolent of them. But it doesn’t hurt that they’ll be making a lot more money this way, by expanding their asset pool.

The Freddie Mac product is called Home Possible Advantage. It will be available for home loans with settlement dates on or after March 23, 2016. Borrowers who use this program could qualify for a conventional mortgage loan with a 3% down payment. Manually underwritten borrowers need to have a credit score of 660 or higher and participate in a homeowner education program. Additionally, the borrower’s “annual qualifying income must not exceed 100% of the area median income or the income multipliers in the designated high-cost areas.”

Not to be outdone by (or to lose business to) its GSE counterpart, Fannie Mae also announced it will acquire conventional mortgage loans with down payments of 3%. In a product fact sheet published in November of last year, Fannie Mae outlined the requirements for 97% LTV mortgages. Many of the high-LTV loans the GSE purchases will fall under its HomeReadyTM product umbrella. The requirements for HomeReady include income limits similar to Freddie Mac’s parameters, as well as homeowner education and counseling.

As a result of these ongoing changes within the mortgage market, we expect to see expanded opportunities for borrowers seeking a conventional home loan with a 3% down payment. Just realize that most of these loans require additional insurance, and the cost of this insurance is borne by the borrower. So let’s talk about that next.

PMI Is Required in Most Cases, Unless…

Borrowers seeking a low-down-payment home loan must consider the added cost of mortgage insurance. If you make a down payment of 3% on a conventional home loan, there’s a good chance you will have to pay for private mortgage insurance, or PMI. This insurance protects the lender who makes the loan, but it is paid for by the borrower. Thus, PMI can increase the size of a borrower’s monthly payments.

The Freddie Mac and Fannie Mae 97% LTV products mentioned above require some level of PMI. (You’ll find those insurance requirements in the fact sheet and bulletin hyperlinked above.)

Generally speaking, a loan-to-value ratio above 80% requires PMI. This means that most borrowers who take out a conventional mortgage loan with a 3% down payment will end up paying PMI — at least in most cases. But there are a few programs out there that allow home buyers to sidestep the added cost of PMI, even with a down payment as low as 3%.

We have previously reported on such programs, including some offered by credit unions. But even the “big banks” are getting in on the game. Bank of America is the most recent (and newsworthy) entrant into the 3% down payment market. The company recently positioned itself as an attractive alternative to FHA financing by offering a 3% down payment without PMI, for qualified borrowers. A credit score of 680 or higher is required, according to the company.

According to American Banker magazine, Bank of American will turn around and “sell the loans and servicing rights to Self-Help Federal Credit Union, a Durham, N.C., community development lender…”

The bottom line is that home buyers seeking a conventional mortgage with a 3% down payment have a lot more options these days. And some are available without PMI. This is certainly a trend we will be monitoring in 2016, as it could affect a large number of home buyers.

Chart: Mortgage Rates Have Dropped Steadily Since 2016 Began

At the end of 2015, we reported that many economists and housing analysts were predicting a gradual rise in mortgage rates during 2016. This was partly because of the Federal Reserve’s decision to raise the short-term federal funds rate, after holding it near zero for years (along with other factors).

But so far in 2016, mortgage rates have been dropping steadily. For instance, the average rate for a 30-year fixed mortgage has either dropped or remained unchanged every week since the beginning of the year. You can see this trend clearly in the mortgage rate chart below, obtained courtesy of Freddie Mac.

This downward trend contradicts the “conventional wisdom” we reported a few months ago, and it’s good news for anyone who is in the market to buy or refinance a home.

Here’s an updated look at mortgage rates in 2016, including the drops we’ve seen in recent weeks:

Chart: Watch Mortgage Rates Drop in 2016

The chart below accompanied Freddie Mac’s latest weekly survey of the primary mortgage market, published earlier today. On the right (and more recent) side of the chart, you’ll see the downward trend mentioned above. If you were to draw a vertical line upward from the December 31 marker, you’d end up with a nice down slope to the right of that line.

PMMS chart Feb 25
Freddie Mac’s mortgage survey chart, as of February 25, 2016

The average rates assigned to other mortgage products — including the 15-year fixed mortgage and the 5/1 ARM — have followed this downward trend as well. We have now hit a one-year low point in the 30-year fixed category.

It’s Official: 30-Year Rates Fall to a 12-Month Low

The average rate assigned to a 30-year fixed mortgage (FRM) has dropped by 39 basis points, or 0.39%, since the start of 2016. When 2015 came to a close, the average rate for a 30-year loan was 4.01%. As of the latest rate survey taken this week, that average had fallen to 3.62%. That’s the lowest it has been since early February of last year.

It bears repeating: today’s 30-year mortgage rate average has dropped to a 12-month low.

This should come as welcome news to home buyers in the market to purchase a house, and homeowners looking to refinance. Declining rates will improve housing affordability for buyers, and lessen the blow of rising home prices. Dropping mortgage rates will also put more homeowners in a position to refinance their existing loans and save money over the long term.

Other Loan Products Are More Affordable as Well

The 15-year mortgage rates average has also dropped steadily since the start of 2016. During the first week of this year, the 15-year average was 3.26%, according to Freddie Mac’s weekly survey. This week it fell to 2.93% — its lowest level since April of last year.

The average rate for a 5-year adjustable-rate mortgage (ARM) also dropped this week, landing at 2.79%.

Perhaps those upward predictions will eventually pan out. Perhaps we will end 2016 with rates being higher than they were at the end of last year. But right now, it’s just not happening. So much for forecasts.

Disclaimer: This story mentions forecasts and predictions offered by third parties not associated with the Home Buying Institute. The publishers of this website make no claims or guarantees about future interest rates or trends within the mortgage market.

FHA Alternative: Bank of America’s 3% Down Payment Mortgage Loan

Cash-strapped home buyers rejoice.

Bank of America, one of the largest mortgage lenders in the U.S. based on loan volume, recently announced it would offer a 3% down payment home loan without charging borrowers for private mortgage insurance. It’s a safe bet this product will be wildly popular with borrowers.

For many years, home buyers who wanted a mortgage loan with a down payment in the 3% range had but one option — an FHA loan. Mortgages insured by the Federal Housing Administration offer loan-to-value ratios up to 96.5%, for a out-of-pocket down payment as low as 3.5%.

But over the last couple of years, an increasing number of mortgage lenders have been offering 3% down payments on conventional (non-government-backed) home loans. We’ve written about this trend several times in the past.

Now, Bank of America appears to be jumping on the 3% bandwagon as well, according to a recent article in the Wall Street Journal.

Bank of America Offers 3% Down Payment with No PMI

Bank of America is the latest — and one of the largest — U.S. lenders that is now offering 3% down payment mortgage loans, according to a recent company announcement. The new financing product, which will be officially announced later today, allows Bank of America to compete with the FHA for home buyers seeking a lower down payment option.

But that’s not all. The Charlotte-based financial company said that their 3% down payment product will also allow home buyers to avoid private mortgage insurance (PMI). This is a noteworthy feature, because PMI is typically required on home loans that account for more than 80% of the purchase price.

Typically, when a borrower makes a down payment in the 3% range, he or she would have to pay for additional mortgage insurance that is designed to protects the lender. These insurance policies inflate the monthly payments and the total cost of the loan.

TD Bank was one of the first to offer such a product (a 3% down payment with no PMI), when it retooled its “Right Step” mortgage program back in 2014. Since then, other lenders have followed suit.

An Attractive Alternative to FHA Loans?

According to the Department of Housing and Urban Development (HUD), the smallest allowable down payment on an FHA loan is 3.5%. FHA also requires two types of mortgage insurance — there’s an upfront premium, as well as an annual premium. This is one of the biggest downsides to the program, especially since the annual premium has to be paid for the life of the loan in most cases.

The upfront mortgage insurance premium (MIP) for an FHA-insured home loan is currently 1.75% of the amount being borrowed. That’s $3,500 on a $200,000 mortgage, for example. The annual MIP for a 30-year fixed FHA loan is 0.85%.

So if Bank of America offers a 3% down payment option to home buyers, without the added cost of PMI, they will position themselves as an attractive alternative to FHA loans for cash-strapped borrowers.

According to D. Steve Boland, managing director for consumer lending at Bank of America, the company’s new loan product gives eligible borrowers a much-needed alternative to the Federal Housing Administration’s program:

“We need an alternative in the marketplace that helps creditworthy borrowers with a track record of paying debts on time,” he said. “We think there are still a lot of uncertainties out there in working with FHA.”

But not everyone will qualify for the new lending product. According to the company, borrowers must have a credit score of 680 or higher. There are size limits on the loan as well.

Chart: Average Mortgage Rates Drop Again, Despite Fed’s Actions

Home buyers rejoice. Mortgage rates have sunk even further into 3% territory, despite the Federal Reserve’s policy shift (and interest rate hike) that took place at the end of last year. This upends the predictions made by some economists and housing analysts, who expected mortgage financing costs to rise at the start of 2016.

Mortgage Chart Says it All: Average Rates Drop Again

The mortgage rate chart below was published by Freddie Mac on January 21, 2016. It shows average rates for the three loan categories they monitor (30-year fixed, 15-year fixed, and 5/1 ARM loan), dating back to this time last year. The most recent averages are shown on the right.

mortgage rate chart for January 21
Freddie Mac’s mortgage rate chart for the week ending January 22

Yesterday, Freddie Mac announced that the average rate for a 30-year fixed mortgage (FRM) fell to 3.81%. That’s the lowest it has been since November 5 of last year. The average rate for a 15-year FRM fell to 3.10% this week, while the 5/1 ARM loan average moved below 3% to end the week at 2.91%.

The thirty-year mortgage rate average has dropped for the last three weeks in a row, which is the exact opposite of what most analysts were expecting. Many industry observers were forecasting a rise in mortgage rates, partly as a result of the Fed’s policy change. Maybe a gradual rise is still on the way — but it’s clearly not here yet. On the contrary, home buyers and refinancing homeowners are still enjoying mortgage rates below 4%.

At the end of 2015, Fed officials announced they would raise the federal funds rate for the first time in years. This is the rate that banks use when loaning money to each other in the form of overnight transfers, and it has an indirect influence on consumer interest costs.

It’s important to note that the Federal Reserve does not control mortgage rates directly. But they do control the short-term federal funds rate, mentioned previously. Mortgage borrowing costs frequently (but not always) rise when the federal funds rate goes up. That’s why so many economists and analysts were expecting average mortgage rates to increase at the start of this year. So it’s somewhat surprising to see lending rates drop for the last three weeks in a row.

This week’s decrease was more than ten basis points, at least in the 30-year FRM category. The average rate for a 30-year fixed mortgage dropped by 0.11% from last week to this week, according to Freddie Mac’s long-running industry survey. That’s a significant decline, especially at a time when experts were expecting to see upward pressure on home loan interest rates.

It’s further evidence that you can’t bank on predictions.

Regardless of recent trends, the economists at Freddie Mac are sticking to their long-term forecast that rates will rise over the coming months. In a recent statement, they predicted that “mortgage rates will increase gradually through 2016 in response to monetary tightening, averaging 4.4% for the year,” and perhaps reaching 4.7% by the end of 2016.

Meanwhile, Home Prices Continue to Rise…

While mortgage rates have dropped in recent weeks, home prices in most U.S. cities continue to climb. And this is causing affordability problems for many would-be home buyers, especially those in hot markets like Dallas, Denver and San Francisco.

In their latest monthly housing forecast, the economists at Freddie Mac stated the following:

“The imbalance between housing demand and supply continues to boost prices [in the U.S.]. We expect house price growth to moderate a bit to 4.4 percent in 2016, still well above the long-run sustainable rate of house price growth.”

The 4.4% projection is a national outlook. Home prices could rise more than that in some hot real estate markets, like Seattle and Dallas. Such housing markets are currently experiencing supply shortages that are lifting prices faster than the national average.

Notes and disclaimers: This story contains forward-looking statements (forecasts) from third-party individuals and organizations not associated with the Home Buying Institute. The publishers of this website make no claims or assertions about future interest rate trends. Third-party data are deemed reliable but not guaranteed. The mortgage rate chart shown above was provided by Freddie Mac.

Seattle Loan Limits Jump $23,000 in 2016: New Limit $540,500

In 2016, Seattle mortgage shoppers will have an additional $23,000 of price range before they hit any loan limits. At the end of 2015, the Federal Housing Finance Agency (FHFA) announced it would increase the conforming loan limit for Seattle. In 2016, the new loan limit for single-family homes is $540,500. This applies to FHA and VA loans as well.

Seattle Gets Higher Conforming Loan Limits in 2016

A conforming loan is one that can be sold to the government-sponsored enterprises Fannie Mae and Freddie Mac, via the secondary mortgage market. Fannie and Freddie can only purchase loans up to a certain amount. This maximum amount is referred to as the conforming loan limit.

These limits vary by county. They get reviewed every year and are sometimes increased from one year to the next, in response to rising home prices.

The conforming loan limit for Seattle was increased for 2016. In 2015, the maximum size for a conforming single-family home loan was $517,500. In 2016, the single-family cap was raised to $540,500. That’s a one-year increase of $23,000.

According to the Federal Housing Finance Agency: “the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2016 will remain at existing levels, except in 39 high-cost counties where they will increase.”

King, Pierce and Snohomish counties were among the 39 counties where loan limits were increased. That means the increase will affect most cities and towns within the Seattle metro area.

One of Only Eight U.S. Metros With an Increase

As mentioned above, loan limits were increased in only 39 counties across the country. These counties are spread over eight or nine metropolitan areas, including Boston, Denver, Nashville, San Diego and Seattle.

All of these housing markets have something in common. Home prices within these metro areas rose significantly in 2015. That’s what prompted the FHFA to increase the 2016 loan limits for Seattle and the other high-cost areas.

FHA and VA Limits Were Also Raised

Seattle FHA loan limits were also increased for 2016, and they match the conforming caps stated above. The same goes for Veterans Administration (VA) home loans. All single-family loan limits in Seattle are now set at $540,500, through the end of 2016.

Borrowers who need financing in excess of $540,500 still have options. It’s called a jumbo loan. This is a mortgage product that exceeds the conforming caps shown above. But buyer beware — lenders are a bit more picky when it comes to jumbo loans. They tend to require more money down and higher credit scores.

Rising Home Prices Are the Reason

The Seattle loan limits for 2016 were increased in response to rising home prices. According to the real estate information company Zillow, home prices in the Seattle area rose by double digits last year. The Zillow Home Value Index (ZHVI) for the city rose by 12.8% over the last 12 months. The ZHVI for the broader metro area rose by 9% in the last year.

The S&P/Case-Shiller Home Price Index for Seattle rose by nearly 9% from October 2014 to October 2015 (the most recent data available at press time). So no matter which source you look at, the trend is the same. Seattle home prices rose sharply over the last year.

This is why the Federal Housing Finance Agency raised Seattle’s loan limits. In short, buyers are having to pay more for homes these days. So they need access to larger loans without bumping into the caps.

Milestone: Today’s 30-Year Mortgage Rates Highest Since July

Two weeks ago, we reported that financial analysts were predicting a gradual rise in mortgage rates during 2016. Could this be the start of it?

Thirty-year mortgage rates have been hovering below the 4% mark since mid-summer of this year. But not anymore. Earlier today, Freddie Mac reported that the average rate for a 30-year fixed home loan rose five basis points (0.05%) to land at 4.01%. That means today’s mortgage rates are the highest they’ve been since the week of July 23.

Granted, a five-basis-point jump is more of a small hop. So it’s no cause for alarm. What’s more important here, especially for 2016 home buyers and mortgage shoppers, is the possibility that we are witnessing the start of an upward trend. The Home Buying Institute encourages those in the market for a home loan to monitor such trends.

Today’s Mortgage Rates Rise to a 5-Month High

The average rate for a 30-year fixed mortgage is currently 4.01%, according to the weekly survey published by Freddie Mac earlier today. That brings today’s mortgage rates to a five-month high. The 30-year average hasn’t been above 4% since the week of July 23, when it hit 4.04% (shown in the middle of the chart below).

Mortgage rate chart, Freddie Mac
Freddie Mac’s mortgage rate chart for 2015

Today’s 15-year fixed mortgage rates are also slightly higher than last week, according to Freddie Mac’s weekly market survey. The 15-year average rose to 3.24% this week, a jump of two basis points over last week. The average rate for a 5-year ARM loan climbed to 3.08%, while the 1-year ARM held steady at 2.68%.

According to Sean Becketti, chief economist at Freddie Mac, consumer confidence played a role in today’s mortgage rate increase:

“In the final week of 2015, Treasury yields jumped reacting in part to strong consumer confidence in December. In response, the 30-year mortgage rate rose 5 basis points to 4.01 percent, ending a 5-month span below 4 percent.”

This is certainly a trend worth watching, especially if you’re in the market for a home loan. Home buyers, in particular, should monitor these development in light of rising house values. Buyers who purchase a home later in 2016 could end up paying more for a house and a mortgage loan.

Read our top tips for home buyers in 2016

A Widely Anticipated Increase?

It’s not surprising that today’s mortgage rates are higher than last week’s averages. In fact, many analysts were expecting this to happen. There are several factors driving this trend.

Earlier this month, the Federal Reserve announced it would raise the short-term federal funds rate for the first time in seven years. And this tends to have an indirect influence on mortgage borrowing costs. This is partly why so many analysts and economists have predicted a gradual rise in rates during 2016.

Freddie Mac’s economic team made just such a prediction earlier this month, forecasting that 30-year mortgage rates would climb to 4.7% by the end of 2016. Similarly, the Mortgage Bankers Association (MBA) predicted that the 30-year average would climb to around 4.8% by the fourth quarter of 2016.

In a survey conducted by Bloomberg earlier this month, 38 of 47 economists said that the Federal Reserve’s recent policy shift would cause 30-year mortgage rates to rise next year. This appears to be the general consensus across the board.

We’re not saying you should “bank” on these predictions. After all, they’re merely an educated guess. But when most everyone seems to be saying the same thing, perhaps it’s worth listening to.

Disclaimer: This story contains data shared by third parties not associated with the Home Buying Institute. Today’s mortgage rate averages were provided by Freddie Mac. Such information is deemed reliable but not guaranteed. Additionally, this article contains forward-looking statements (forecasts) that should be viewed as opinions, not facts. HBI makes no claims or assertions about future mortgage trends.