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.