Mortgage Rate Forecast for April 2017 – 2018: A Slow Climb Ahead?

Home buyers got some good news last week, regarding mortgage rates. According to the weekly survey conducted by Freddie Mac, the average rate for a 30-year fixed mortgage loan dropped by 11 basis points (0.11%) last week, landing at 3.97%. That marked its lowest point of 2017, and the lowest level since November of last year.

But that’s just a short-term trend. The latest long-term forecast for mortgage rates suggests that they could inch upward between now and the end of 2017, bringing higher borrowing costs for home buyers who delay their purchases.

Revised Mortgage Rate Forecast for April 2017

On April 18, the Mortgage Bankers Association (MBA) published its latest mortgage rate forecast extending through the end of 2017 and into 2018. By their estimation, the average rate for a 30-year fixed mortgage (the most poplar type of home loan) will rise to 4.6% by the fourth quarter of 2017. Furthermore, they expect the benchmark 30-year rate to climb above the 5% threshold sometime around the middle of 2018.

As a result of this mortgage rate forecast, the industry group expects home refinancing activity to decline through the rest of 2017. Home purchases, meanwhile, will continue to dominate the mortgage market with more than twice as many loan originations, when compared to refinances.

Federal Reserve Tweaks Its Monetary Policy

The Federal Reserve has a part in all of this. After years of keeping the short-term federal funds rate near 0%, Fed officials are now raising it in small increments. This is the result of their improved outlook regarding the economy. After its last major policy meeting, which took place in March 2017, the Federal Open Market Committee stated:

“The Committee expects that … economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term … In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent.”

Additional rate hikes are possible, according to at least one source close to the matter.

The Federal Reserve does not control mortgage rates directly. The interest rates assigned to home loans are primarily driven by market forces. But the Fed’s policies can have an indirect effect on mortgage pricing, by shifting demand among investors. In short, when the Federal Reserve raises the short-term federal funds rate (which applies to inter-bank transfers), mortgage rates tend to go up as well.

This is partly what accounts for the MBA mortgage rate forecast, which calls for a gradual rise through 2017 and into 2018.

Bucking Predictions, Rates Have Dropped in Recent Weeks

Despite a previous increase for the federal funds rate, and additional hikes looming on the horizon, home mortgage rates have actually dropped in recent weeks. According to the nationwide industry survey conducted by Freddie Mac, mortgage rates have fallen steadily for the last five weeks are are currently 23 basis points (0.23%) lower than they were at the beginning of 2017.

The average for a 30-year fixed mortgage fell to 3.95% last week, down from 4.20% during the first week of this year. So they’ve defied predictions that were made at the end of last year.

This is something to keep in mind going forward. The MBA’s latest forecast for mortgage rates predicts a gradual increase through the rest of 2017 and into 2018. But they’ve been wrong with these predictions in the past.