Mortgage Rates in 2017

Mortgage Rates Outlook in 2017

To more accurately estimate where rates are headed in the coming year, it’s important to first review rate trends in 2016 thus far.

In early 2016, rates hovered around the four percent mark and then fell about 0.5 percent, hitting bottom in June and July. They have not risen much since then, partly due to fears about the economy.

In addition, the Fed delayed its plans to increase short-term rates because economic growth has not yet justified an increase.

Continued low interest rates are good news for would-be buyers planning to purchase soon. But a lot can change six or 12 months from now.

Mortgage rates are likely to increase approximately a quarter percent over the next six months and rise approximately a half percent, or 50 basis points, over the course of the next 12 months. If gross domestic product moves above three percent, mortgage rates would rise more quickly. It may also indicate fluctuations in mortgage rates based on the next president’s policies and the corresponding response from the financial markets.

The Fed continues to be the biggest buyer of mortgage-backed securities in the market. If they slow down on these purchases, the supply and demand relationship will invert, causing heavy volatility — which could have more of a negative effect on mortgage rates than a Fed hike. The results of the November presidential election could also affect mortgage rates in 2017 more than anticipated. If the elected president reduces U.S. corporate tax rates or impacts policy to improve business, stocks are expected to rise. And if stocks rise, funds will be pulled out of the bond market, causing interest rates to rise.

The Fed and many economists have been predicting about a half percent increase in long-term mortgage rates each year going back to the Great Recession, and each year rates essentially have stayed within the same range — moving lower due to the stagnant economy and continued uncertainty on alternative investment opportunities abroad.

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