Mortgage rates were supposed to be near 2% by now.
Great Britain voted to leave the European Union, global markets were in turmoil, and lazy growth permeated the U.S.
The final push was supposed to be a win for the Republican presidential candidate on Tuesday, November 8.
Analysts projected 1000-point drops in the stock market, and mortgage rates to follow suit. A candidate other than status quo would introduce uncertainty, the logic went, and a flight to safe assets.
But that's not what happened. Markets decided the future is not so grim.
The stock market rallied, and mortgage rates rocketed to 7-month highs.
The question remains: will 30-year fixed mortgage rates in the 3s exist in 2017?Click to see today's rates (Jan 24th, 2017)
The last quarter of 2016 is shaping up to be one of the worst in history for mortgage rates.
Fortunately, the "starting point" was incredibly low.
In June, Britain voted to leave the European Union. This introduced unprecedented insecurity to world markets. U.S. mortgage rates dropped to a whisper away from all-time lows.
There rates remained for months. It took 19 weeks for rates to finally rise above the 3.5% threshold, according to mortgage agency Freddie Mac's weekly rate survey.
Investors looked ahead to three factors in a rate-unfriendly future.Click to see today's rates (Jan 24th, 2017)
First, the Federal Reserve will likely raise its benchmark rate in December.
The economy is doing well. Unemployment is near 5% -- its lowest level in eight years. The Fed seeks to maximize employment in the economy. On that front, it is succeeding.
The Fed's other mandate is to control inflation. It raises rates to keep inflation at its target level of 2% annually. Recent reports, though, hint that inflation could become more of a concern.
The Fed could raise rates to slow the trend.
Investors are looking at inflation too.
In October, the Non-farm Payrolls report showed worker wages are rising faster than any time since June 2009. While that's great for workers, it's not-so-great for mortgage rates.
Rising wages means companies must charge more for goods and services.
As prices in the economy rise, wages must be pushed higher to compensate. If left unchecked, wage-induced inflation feeds on itself, leading to ever-increasing prices.
Investors shy away from the bonds when inflation is high.
If you buy an asset for $100, but it's worth $95 in inflation-adjusted dollars next year, it's not a good investment.
That is, unless the rate of return is high.
Rates must go higher, then, as inflation rises.
Investors are always trying to predict the future.
That gets very hard to do when financial and political landscapes change.
At the moment, investors are predicting a rate-unfriendly future. The stock market is up, showing that investors are confident in riskier investments like stocks, and not so keen on "safe" assets like mortgage-backed securities -- the assets that drive mortgage rate levels.
Plus, the new administration, the predictions go, will be focused on defense and infrastructure spending, and big tax cuts.
Those initiatives cost money. Bond sales would finance the projects, but that means a market flooded with bonds.
Mortgage-backed securities (MBS) are a type of bond. Increased supply would lead to dropping MBS value and higher mortgage rates to compensate.
If the theory is correct, 30-year mortgage rates may have left the 3% era for good.Click to see today's rates (Jan 24th, 2017)
Mortgage rates beat projections throughout 2016.
From Main Street to Wall Street, almost no one foresaw this year's mortgage rates.
Rates started the year near 4%, then dropped close to all-time lows. Rates had been solidly under 3.5% through summer and fall.
Mortgage rates change quickly, though, and are experiencing serious headwinds. Freddie Mac reported rates above 3.5% for the first time in 19 weeks, and rates have increased mightily since then.
What does 2017 hold for mortgage consumers?
A new era is emerging, it appears, in which rates will be at or above 4% throughout 2017. A rosy economic outlook, increased inflation, and Fed policy are pushing rates up, and could continue to do so next year.
As a consumer, it may be wise to lock your home purchase or refinance rate in 2016. Rates are still historically low, despite recent jumps.
Mortgage rates available now could be the best ones to be found over the next 12 to 15 months.
With rates still in the 3s, it pays to shop around, find your best rate, and lock in.
Home loans are still cheap, taking a historical view. Rates averaged much higher than 4% through most of history. There was a time when 5% seemed a "too good to be true" rate.
Now, rates are still well below 4%, on average.
Get a quote for your home purchase or refinance loan. No social security number is required to start, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Jan 24th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Judy T. Business Owner
I read The Mortgage Reports every day.
Jerolyn C. CPA
The Mortgage Reports isn't just basic mortgage rate information -- it's analysis on rate changes and trends, and updates on the laws in lending. Subscribing to the site's daily updates is worthwhile.
Theresa D. President, Title Services
The Mortgage Reports gives me an overview of what's happening with mortgages both locally and nationally. I really enjoy it.
2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)