Where mortgage rates headed in 2017?
There are two answers to that question, a short-term answer and a long-term answer.
To answer the short term question we need to start at the election in November. In the weeks after the election the stock market rallied to a historic high but the bond market dropped over 300 basis points. That drop in the bond market which directly impacts interest rates, is what most people were expecting to occur during 2017. The fact that it happened over a 10 day period was a bit of a shock to the system as mortgage rates increased approximately a half a percentage point. The good news is that in the short term defined as the next 3 to 5 months, we expect mortgage rates to remain where they are. We expect the bond market to level off as consumer confidence has not been this high since 2007.
Rates on credit cards and home equity lines will likely increase if the Federal Reserve increases the prime rate as expected in December. We also expect the Fed to increase that base rate at least once if not twice during 2017.
We also expect Long-term interest rates, defined as through the middle to end of 2017, to be up .375 To a .500 point. The bottom line is that we have likely seen the last of interest rates in the 3% range. We expect interest rates will remain in the low to mid 4% for conventional 30 year fixed loans. This will likely increase the use of ARMs (adjustable rate mortgages) as most people don't stay in their homes more than seven years and those interest rates will remain in the mid-3% range.
Overall we see this as a positive environment for homebuying and mortgage activity. If the economy can begin to grow and approach a 3 to 4% annual improvement that means more people are employed making more money. While that might drive interest rates into the high fours, increased employment and higher wages will keep the affordability in the same range.