Posted 11/30/2017

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December 2017 mortgage rates forecast (FHA, VA, USDA, Conventional)

December 2017 mortgage rate forecast

Tim Lucas

The Mortgage Reports Contributor

Mortgage rates forecast for December 2017

It's been a surprising year for mortgage rates.

At this time one year ago, 30-year mortgage rates had just jumped past 4% following the presidential election. Analysts were calling for rates in the mid-4s or even 5% by now.

Those predictions, it turns out, were dead wrong.

Not only did rates fail to rise as 2017 rolled on, they actually dropped. According to mortgage agency Freddie Mac, the average 30-year rate is down 40 basis points (0.40%) from its March 2017 high. This translates to savings of nearly $60 per month on a $250,000 mortgage.

The question everyone is asking, though, is, "Will mortgage rates hold through December and beyond?"

No one knows, but what is certain is that interest rates are on shaky ground.

The Federal Reserve is about to get a new boss, historic tax reform is close to becoming law, inflation is in uncharted territory...there is an unlimited number of directions mortgage rates could go.

About the only homeowner or home buyer not interested in mortgage rates are those that have already locked in. So the real question is, when will you lock in these unexpected rates?

Verify your new rate (Dec 13th, 2017)

Freddie Mac: Mortgage rates just won't rise above 4%

Mortgage agency Freddie Mac has been tracking rates for more than 45 years.

There have been few mortgage rate streaks like the one we're seeing now.

The last time the 30-year fixed rate average rose above 4% was the week of July 13. Since then, mortgage rates have remained below the psychologically important four-percent mark for 20 straight weeks.

This doesn't make a lot of sense.

The stock market just crested 24,000 for the first time. The S&P 500 is up nearly 21% since one year ago. That kind of growth usually pushes up mortgage rates, as investors dump bonds and pile into stocks.

Yet, higher rates have failed to materialize.

A Marketwatch poll revealed that analysts thought rates would be near 4.5% through 2017. So far this year, the highest weekly average rate has been 4.3%, and we haven't seen those levels since March.

What does that mean for the home buyer or refinancing household? A lot. Here is the difference in principal and interest payment on a $250,000 mortgage between expected and actual levels as of November 30, 2017.

  • 4.50%: $1,267 per month
  • 3.90%: $1,179 per month

That $88-per-month difference makes home buying more affordable, or could make a refinance pencil out.

Is it time to take action? It surely could be, before December events take their toll on rates.

Conventional loan rates

Conventional refinance rates are holding low, as are rates for home purchases.

The Freddie Mac report described above polls lenders only on conventional rates, not ones for FHA, USDA, or VA loan types.

Yet those programs are worth looking into if you have a small down payment or damaged credit.

Conventional loans, however, are more suited for those with decent credit and at least 3% down (but preferably 5% due to higher rates that come with lower down payments).

Twenty percent in equity is preferred when refinancing.

With adequate equity in the home, a conventional refinance can pay off any loan type. These loans can even cancel mortgage insurance.

For instance, say you purchased a home three years ago with an FHA loan at 3.5% down. Since then, home values have skyrocketed.

You refinance into a conventional loan (because you now have 20% equity) and eliminate FHA mortgage insurance.

Depending on your original home price and loan amount, this could be a savings of hundreds of dollars per month, even if your interest rate goes up.

Getting rid of mortgage insurance is a big deal.

Learn more about conventional refinance loans here.

Verify your conventional loan eligibility (Dec 13th, 2017)

FHA mortgage rates

FHA is currently the go-to program for home buyers who don't qualify for conventional loans.

The good news is that you could get a lower rate on an FHA loan than you can for conventional.

According to loan software company Ellie Mae, which processes more than 3 million loans per year, FHA loans averaged 4.22% in October, while conventional loans averaged 4.25%.

(You might wonder why Ellie Mae reports higher average rates than does Freddie Mac. It's because Ellie Mae considers loans at all credit and down payment levels, whereas Freddie Mac averages rates for the "perfect scenario.")

So, even with damaged credit, you can get a great rate. Yes, these loans come with mortgage insurance, but overall cost per month is not that much more than for conventional loans.

A little-known program, called the FHA streamline refinance, lets you convert your current FHA loan into a new one at a lower rate, if rates have fallen since you received your loan.

An FHA streamline requires no W2s, pay stubs, or tax returns. And you don't need an appraisal, so current home value doesn't matter.

Learn more about the FHA streamline loan here.

Verify your FHA loan eligibility (Dec 13th, 2017)

VA mortgage rates

Homeowners with a VA loan currently are eligible for the ever-popular VA streamline refinance.

No income, asset, or appraisal documentation is required.

If you've experienced a loss of income or diminished savings, a VA streamline can get you into a lower rate and better financial situation. This is true even when you wouldn't qualify for a standard refinance.

Learn more about the VA streamline refinance here.

But don't overlook the VA loan for home buying. It requires zero down payment. That means if you have cash for closing costs, or can get them paid for by the seller, you can buy a home without raising any additional funds.

VA mortgages are offered by local and national lenders, not by the government directly.

This public-private partnership gives consumers the best of both worlds: strong government backing and the convenience and speed of a private company.

These loans don't require a high credit score. In fact, most lenders will accept scores down to 640, or even lower in some cases. Plus you don't pay high interest rates for low scores.

Quite the contrary, VA loans come with the lowest scores of all loan types according to Ellie Mae. In October, 30-year VA mortgage rates averaged 3.97% while conventional loans averaged 4.25%

There's incredible value in VA loans.

Verify your VA loan eligibility (Dec 13th, 2017)

USDA mortgage rates

Like FHA and VA, current USDA loan holders can refinance via a "streamlined" process.

With the USDA streamline refinance, you don't need a new appraisal. You don't even have to qualify using your current income. The lender will only make sure that you are still within USDA income limits.

More about the USDA streamline refinance.

Home buyers are also learning the benefits of the USDA loan program for home buying.

No down payment is required, and rates are ultra-low.

Qualification is easier because the government wants to spur homeownership in rural areas. Home buyers might qualify even if they've been turned down for another loan type in the past.

Verify your USDA loan eligibility (Dec 13th, 2017)

Mortgage rates today

While a monthly mortgage rate forecast is helpful, it's important to know that rates change daily.

You might get 4.0% today, and 4.125% tomorrow. Many factors alter the direction of current mortgage rates.

To get a synopsis of what's happening today, visit our daily rate update. You will find live rates and lock recommendations.

Mortgage rate predictions for December 2017

There is no shortage of market-moving news in December. The top seat at the Federal Reserve is about to switch hands, and monumental tax reform could become law.

In addition, an important Federal Reserve meeting adjourns December 13. Will the groups rate hike decision move mortgage rates?

Verify your new rate (Dec 13th, 2017)

Jerome Powell to replace Fed Chair Janet Yellen

Though Federal Reserve Chair pick Jerome Powell will replace current Chair Janet Yellen, he is not expected to shift policies dramatically.

Markets took the announcement in stride. Powell was the safe choice, and that's good for mortgage rates.

During the Great Recession in 2008 and onward, the Fed went to great lengths to keep mortgage rates low. The group took historic actions like actively buying mortgage bonds to keep interest rates low.

Now, the Fed is tasked with unloading those assets. That's easier said than done.

If the Federal Reserve sells government-held assets too quickly, mortgage rates would skyrocket in the face of a massive supply of mortgage bonds.

Yet Powell as the Fed Chair ensures a gradual backing out of previous asset purchases, as Yellen would have done. This settled markets, and kept mortgage rates low.

December mortgage rates shouldn't hold any surprises, at least due to a change at the top at the Fed slated for early next year.

Trump budget / tax reform could usher in a new era for rates

Mortgage rates could rise in December in anticipation of a new tax code.

At the time of this writing, Senate Republicans are days away from passing a substantial tax bill.

President Trump calls the new tax plan "the biggest cuts ever in the history of this country," according to CNN. It would cut corporate tax from 35% to 20% as well as doubling the standard deduction for some filers.

The new tax plan could be "the biggest cuts ever in the history of this country," —Donald Trump

What does tax reform have to do with mortgage rates? As it turns out, a lot.

Lower taxes could increase economic activity and spur the economy. Corporations would become more profitable, and the average family would have more to spend.

All this increased economic activity would lead to inflation in two basic ways. First, the demand for goods and services would rise as people have more to spend. This could lead to higher prices.

Second, tax cuts mean there's less money coming into the government. So, Uncle Sam would issue more debt to pay for regular government operations. This causes rates to rise, because government securities and mortgage-backed securities are the same type of asset.

In other words, more of the same kind of stuff in the market causes value of those assets to drop. As value drops, interest rates must rise to continue attracting buyers.

Tax reform is expected to pass by the end of the year. That means mortgage rates could be in for a bumpy ride in December. Watch for headlines about tax proposals making their way through Congress this month.

The Fed will (almost certainly) raise rates in December

The Federal Reserve meeting adjourns December 13. There is a 90% chance that the group will hike rates by 0.25% according to CME Group's FedWatch tool.

That doesn't mean mortgage rates will rise, however. The Fed doesn't control mortgage rates — markets do that. Because this hike is so widely expected, it's already priced into today's mortgage rate levels.

Interest rates are like stock prices in that they anticipate change instead of wait for it.

A company says it developed a groundbreaking product that will debut next year. The stock goes up now, not a year from now. Likewise, a company announces its sales will be much lower next year. The stock price drops today.

Mortgage rates rise and fall on the future, not on the present.

If you want to know where mortgage rates will go, watch out for economic news that points to inflation or major economic changes, even if those events will happen months or years from now.

Where is inflation going, anyway?

You can't talk about mortgage rates without also mentioning inflation.

Low inflation is perhaps the best explanation for today's low mortgage rates — despite a rallying stock market and economy.

Related: How inflation changes mortgage rates

Inflation has been surprisingly low. The five years preceding October 2017 saw a rate of "core" inflation (excluding food and energy) of 1.58% per year, falling short of the Fed's goal of 2%.

Low inflation in times of recession are expected. But why hasn't inflation budged during solid "rebound" years?

For comparison, prices during the five years preceding October 2008 saw a robust 2.19% average increase per year.

Not even the Fed fully knows why inflation hasn't picked up to those levels. To date, it has explained it away as "transitory." Meaning, whatever is causing ultra-stable prices will soon go away.

We won't try to answer the question here, but consumers should note is that mortgage rates are on borrowed time. Mortgage rates shoppers are benefitting from the current low-inflation anomaly. 

Will mortgage rates rise in December as inflation picks up? Not likely. However, it's a real possibility as we enter 2018.

This month's economic calendar

The next thirty days hold no shortage of market-moving news. Notably, watch for the Fed Meeting announcement on December 13.

  • Friday, December 8: Jobs Report, unemployment rate, wages
  • Wednesday, December 13: Consumer Price Index (closely-watched inflation measurement)
  • Wednesday, December 13: Federal Open Market Committee meeting (aka "Fed meeting") adjourns
  • Tuesday, December 19: Housing Starts
  • Wednesday, December 20: Existing Home Sales
  • Friday, December 22: New Home Sales
  • Friday, December 22: Personal Income and Outlays (the Fed-preferred inflation gauge)

Now could be the time to lock in a rate in case any one of these events push up rates this month.

What are today's mortgage rates?

Mortgage rates are holding below 4 percent, to the surprise of analysts. Home buyers have excellent purchasing power, and refinancing households can save more cash than they could just months ago.

Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Dec 13th, 2017)

 

Selected sources:

http://money.cnn.com/2017/11/28/news/economy/senate-revised-tax-bill/index.htmlhttp://money.cnn.com/2017/11/30/investing/dow-24000-stocks-wall-street-trump/index.html?iid=hp-stack-dom
https://www.cnbc.com/2017/11/02/trump-picks-jerome-powell-to-succeed-yellen-as-fed-chair.html
https://www.cnbc.com/2017/11/24/big-week-for-markets-with-feds-powell-confirmation-hearing-and-yellen-testimony.html

Tim Lucas

The Mortgage Reports Contributor

Tim Lucas has helped thousands of families buy and refinance real estate. He has been featured in Time, Realtor.com, Scotsman Guide, MyMortgageInsider.com, and more. Connect with Tim on Twitter.

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.

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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)