Mortgage Rates Will Rise in 2016, According to These Experts

Mortgage rates will rise gradually in 2016, ending the year higher than where they are now. That’s the forecast being offered by a growing number of analysts and economists in the United States. And they recently got more ammunition to support their predictions, courtesy of the Federal Reserve.

On Wednesday, Fed officials announced they were going to increase the federal funds rate for the first time in seven years. They’ve kept the funds rate (which banks use when transferring money among themselves) near zero for years, as part of an economic stimulus policy. But now they feel the economy has improved enough to warrant an increase.

In a related statement, Fed officials said: “Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.”

This is one reason why some analysts feel mortgage rates will rise in 2016. Granted, there is no direct connection between the interest rate controlled by the Fed and those used for consumer loans. But the Fed’s policy changes do have an indirect effect on home loan borrowing costs.

Simply stated, there’s a good chance we could see mortgage rates rise over the coming weeks and months, as a result of the Fed’s recent announcement.

Related: 3 housing forecasts and a top 10 list

Economist: Mortgage Rates Will Rise Gradually in 2016

Sean Becketti, the chief economist for Freddie Mac, discussed this indirect relationship in a recent statement: “We take the Fed at its word that monetary tightening in 2016 will be gradual, and we expect only a modest increase in longer-term rates. Mortgage rates will tick higher but remain at historically low levels in 2016.”

The word “gradual” came up in many of the forecasts and predictions we reviewed for this story. The general consensus seems to be this: It is highly likely that mortgage rates will rise in 2016 from where they are right now, but they will probably rise gradually.

Translation: We probably shouldn’t expect any major “spikes” as a result of the Fed’s actions, or other causes. A slow rise over time seems more likely.

MBA: 30-Year Loan Rates to Average 4.8% by End of Next Year

The Mortgage Bankers Association (MBA) recently issued a forecast through the end of 2017. Their prediction is similar to some of the others we’ve encountered, in that it calls for a gradual rise in mortgage rates throughout 2016.

In a statement issued last month, MBA officials stated: “we expect that the 10‐Year Treasury rate will stay below three percent through the end of 2016, and 30‐year mortgage rates will stay below 5 percent until early 2017.”

The group expects the 30-year average to rise to 4.8% by the end of 2016. (It’s currently at 3.97%, according to the latest weekly survey by Freddie Mac.)

And speaking of Freddie Mac, they’ve also issued a forecast for rising interest costs in 2016…

Freddie Mac Forecast: 4.6% by the End of 2016

Freddie Mac, the government-controlled buyer of mortgage securities, recently predicted that the average rate for a 30-year fixed mortgage loan would rise to 4.6% by the end of 2016. Their outlook closely resembles the MBA projection mentioned above, in that it calls for a gradual (there’s that word again) rise in borrowing costs over the coming months.

Of course, they’ve been wrong before. This time last year, Freddie Mac’s economists were predicting roughly the same thing — a slow but steady rise during 2015. But that didn’t happen. In fact, 30-year mortgage rates are ending 2015 only slightly higher than where they were at the beginning of the year. The 30-year average was at 3.73% on January 3, 2015, and it was 3.97% when measured this week. So you have to take these forecasts with a grain of salt.

The big difference this time around is the Federal Reserve. The Fed kept short-term rates near zero all through 2015. But now they’ve announced the first increase in years, and that could throw a wrench into economists’ forecasting models. It’s a whole new ball game in this regard.

Disclaimers: This story contains forward-looking statements about the mortgage industry and the broader economy. Such statements were provided by third parties not associated with the Home Buying Institute. The publishers of this website make no claims or assertions that mortgage rates will (or won’t) rise in 2016. Such predictions are the equivalent of an educated guess and should not be viewed as fact.