Mortgage Rates In 2017 Are Headed Where?

Peter Miller
Peter Miller
The Mortgage Reports Contributor
February 4, 2017 - 3 min read

Mortgage Rates In 2017: Anyone’s Guess

In the long history of mortgage predictions, nothing has shaped up quite like mortgage rates picture for 2017. The general thinking is that mortgage rates in 2017 will increase.

But no one really knows if mortgage rates will rise a lot, rise a little, or actually fall. And if January has been a puzzle, wait until you see what unfolds during the rest of the year.

In the 2017 prediction derby, we have a number of contestants, and their forecasts look like this:

Remember that in 2016, most experts predicted increasing mortgage rates, and instead, we got record-setting lows in August.

Mortgage Rates in 2017 Could Go Lower

What the predictions above suggest is that we will continue to see mortgage rates largely in the four percent range this year, and then maybe something higher in 2018.

For perspective, the average mortgage rate in 1981 was 16.63 percent, while the record annual low was 3.65 in 2016.

Yup, that’s right. Last year was the best time to get a mortgage in almost 70 years. The average annual rate in 2016 — 3.65 percent — was just a touch below the old record set in 2012.

The mortgage rate average in 2016 would have been substantially lower were it not for the sudden up-tick we saw during the last two months of the year.

Mortgage rates averaged just 3.58 percent during the first 10 months versus 3.99 percent during November and December.

Like the price of pork bellies, copper or coffee, interest rates are a real-time reflection of supply and demand.

The catch is that as low as rates were last year, one can argue that 2016 mortgage rates could have been lower — and therefore there is less pressure to push up rates in 2017.

How Could 2016 Mortgage Rates Have Been Lower?

First, there could have been more money available for loans — more supply. Lenders routinely kept more than $2 trillion in “excess reserves” with the Federal Reserve, money they did not loan to consumers.

Why not? One possible reason is they did not want to make loans at a time when rates were so low.

The good news is that the level of excess reserves declined from $2.33 trillion in December 2015 to $1.92 trillion a year later, meaning an additional $400 billion was potentially available for loans, a figure which could rise significantly this year with higher interest levels.

Second, there is so much cash worldwide that investors can hardly give the stuff away. BlackRock, the largest asset manager in the world, says there is $13 trillion invested worldwide with negative interest — and another $37 trillion invested at less than .5 percent. If more of that money migrated to the US, mortgage rates here could fall significantly.

Third, the Federal Reserve was expected to impose several rate increases during the past year. While the Fed does not directly control mortgage rates, the threat of higher Fed rates tends to generally push some rates upward.

What About 2017?

Alternatively, maybe there will be fewer Fed hikes than expected this year. The absence of expected Fed rate hikes could help reduce mortgage costs.

While trade associations and learned economists bravely forecast where mortgage rates might go, the better option — perhaps — is to admit that 2017 is shaping up as a year of change, a year in which the lending environment is simply too volatile to predict.

For example, what if Congress passes tax reform, and as a result, the mortgage interest deduction is eliminated? Would rates go up, down, sideways?

Welcome to 2017, potentially the first year in a new era of mortgage financing.

What Are Today’s Mortgage Rates?

Today’s mortgage rates are probably lower than they’ll be at the end of 2017, according to most experts.

However, your actual mortgage quotes depend on a number of factors — like your credit rating, loan amount, and how you intend to use the property.

Advertised rates can’t consider these factors and are not as accurate as custom quotes that you get by contacting mortgage lenders.

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