Posted 02/23/2018

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March 2018 mortgage rates forecast (FHA, VA, USDA, Conventional)

Mortgage Rate Forecast - March 2018

Tim Lucas

The Mortgage Reports Contributor

Mortgage rates forecast for March 2018

Elon Musk just launched his Tesla Roadster into space, but Falcon Heavy's got nothing on mortgage rates lately.

Rates haven't risen this meteorically since late 2016. And they don't appear to be coming down from the stratosphere anytime soon.

Rocket puns aside, rates have seen better days.

As 2018 started, the 30-year rates had held below 4% for 26 straight weeks, according to mortgage agency Freddie Mac.

Four percent is now out of reach, even for the best-qualified candidates, with 4.5% the new normal. Home buyers and refinance candidates are scrambling before rates head to five.

The good news is that most mortgage rate shoppers haven't been priced out of a refinance or home purchase — yet. But, as we'll discuss, the odds are not in our favor in March.

Verify your new rate (Feb 23rd, 2018)

Freddie Mac: Mortgage rates at highest levels in 4 years

Mortgage rates just broke a barrier not surpassed in 204 weeks.

Since April 2014, rates had remained below 4.40%, that is, until the late stages of February, according to mortgage agency Freddie Mac.

The 30-year fixed rate average is up 62 basis points, or 0.62%, compared to lows reached in September.

What does that mean for the home buyer or refinancing homeowner? A lot.

Home buyers will pay over $100 more per month for a $350,000 home with 10% down, according to this mortgage payment calculator.

A homeowner looking to refinance may discover that the new loan may not yield any savings at all.

But there is a bright spot in all this talk of rising rates. Rates are only high compared to some of the lowest levels ever recorded. If you had offered a 4.4% rate to a home buyer ten years ago, they would have jumped at the chance

(The 30-year rate eclipsed 6.5% in 2008).

Rates are still near half their historical average of over 8%. That provides continued opportunity to lock in very low rates, even if they are higher than in recent history.

We've entered a new era for mortgage rates, where stimulative rate suppression vanishes, and normalized markets appear.

Mortgage rates already approaching predicted 2018 levels

Most major housing agencies and groups predicted higher rates for 2018. But no one saw rates approaching these levels in the first 60 days of the year.

Following are rate predictions cast as 2017 came to a close:

  • Mortgage Bankers Association: 4.6%
  • Fannie Mae / Freddie Mac: 4.5%
  • Realtor.com: 4.6% average, reaching 5% by year-end
  • National Association of Realtors: 4.5%
  • Kiplinger: 4.4%
  • National Association of Home Builders: 4.34%

Rates have already met or exceeded two of the six predictions, and the other four are not far off.

Many people are asking "Why are mortgage rates rising?"

The economy has made a near-full recovery since almost a decade ago when the housing downturn took its toll.

Unemployment topped out at 10% during the Great Recession and now sits in the low 4s. The stock market is booming, and housing prices are rising, too.

Mortgage rates were, and perhaps still are, "too low."

Interest rates usually rise when the economy is doing this well. In the summer of 2007, in the midst of the last boom, 30-year rates neared 6.75% according to Freddie Mac. The boom prior to that — in 1999 — offered rates above 8%.

It's shouldn't be much of a surprise that rates are now rising. If economic expansion continues, we could easily see 5% rates in 2018.

Verify your new rate (Feb 23rd, 2018)

Conventional loan rates

Conventional refinance rates and those for home purchases are still low despite recent increases.

The Freddie Mac report described above asks lenders about conventional rates, but 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. This mortgage calculator with PMI estimates your current mortgage insurance cost. Enter 20% down to see your new payment without PMI.

Learn more about conventional refinance loans here.

Verify your conventional loan eligibility (Feb 23rd, 2018)

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 will get a similar rate — or even lower one — with an FHA loan than you will with conventional.

According to loan software company Ellie Mae, which processes more than 3 million loans per year, FHA loans averaged 4.36% in January, while conventional loans averaged 4.37%.

(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.

Check your future home payment with an FHA mortgage with this FHA loan calculator.

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 refinance here.

Verify your FHA loan eligibility (Feb 23rd, 2018)

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.

Don't overlook the VA loan for home buying. It requires zero down payment.

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 January, 30-year VA mortgage rates averaged just 4.10% while conventional loans averaged 4.37%

Check how much you would pay for a home with this VA loan calculator.

There's incredible value in VA loans.

Verify your VA loan eligibility (Feb 23rd, 2018)

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.

Home payments can be even lower than rent payments, as this USDA loan calculator shows.

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 (Feb 23rd, 2018)

Mortgage rates today

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

You might get 4.2% today, and 4.3% 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 March 2018

There is no shortage of market-moving news in March. Developments are forming now that will impact the remainder of the year.

Verify your new rate (Feb 23rd, 2018)

Wages are up. That could spark inflation. Inflation hurts mortgage rates

Americans are making more money.

And, surprisingly, there's an unexpected relationship between wages and mortgage rates.

When the economy does well, companies must pay more to retain and attract workers. That sounds good, and is for most people. Except for those shopping for mortgages.

That's because higher wages mean companies pass on those costs. Prices on everything from milk to bulldozers go up. That's the definition of inflation.

Inflation is bad for mortgage rates, because it eats into investor returns on fixed-rate investments like mortgage bonds. When prices rise, mortgage-backed securities become worth less and less. So interest rates on those assets must rise to keep investors buying.

Higher rates on mortgage-backed assets are passed onto the mortgage shopper.

Economists are watching recent upticks in wages as a good indicator of future inflation.

In January, wages crept up 2.9% from a year earlier. That the fastest gain since the last economic boom.

Investors have taken notice: inflation is headed higher, and interest rates on mortgage-backed assets must rise as well.

$1.5 trillion infrastructure plan revealed

A massive spending bill was rolled out in February, and impacts on mortgage rates will last through March.

The Trump administration wants to fix the country's failing infrastructure with a program that won't exactly be cheap.

Currently, most of the government runs on borrowed money, so introducing extra spending measures always means borrowing more.

The way the U.S. government borrows is by issuing bonds.

Mortgage rates are based on a type of bond. So a bond-flooded market could mean higher rates on those assets to keep investors buying.

In short, mortgage rates rise when the government borrows more.

It's unclear how much rates could rise as the plan progresses. But the plan moving forward is already making its impact on rates.

The new tax code is now law. What does that mean for interest rates?

Late last year, President Trump signed into law "the biggest [tax] cuts ever in the history of this country."

The new code brings a number of changes, some of which directly affect homeowners and home buyers.

For instance, you will no longer be able to write off unlimited property taxes (or state and local sales tax). Those items are now capped at $10,000. Likewise, the mortgage interest deduction — one of homeowners' most beloved deductions — is now applicable to the first $750,000 in mortgages, down from $1 million.

But those changes won't necessarily affect mortgage rates themselves. What could affect them are the economic changes that come with the tax cuts.

First, the new tax code cuts the corporate tax from 35% to 21%. If all goes as the administration plans, that cut could spark economic development. Corporations could focus on expansion and hiring with the newfound funds.

More workers who are getting paid more dollars could lead to higher inflation. As income increases, so does demand for goods and services. Bigger demand means prices throughout the economy could rise.

Inflation is bad for mortgage rates.

The average person could get a tax break as well, adding to economic growth.

For instance, a person in the 25% tax bracket will see their tax reduced to 22%. Likewise the 15% tax bracket is now 12%.

In real dollars, a married couple making $100,000 per year will see 3% more of their income, or $3,000, in 2018.

Multiply that by the millions of couples in that tax bracket, and it could add to economic expansion. That is, if those families decide to spend the money.

But more money flowing throughout the economy — and hence inflation — is not the only way mortgage rates could rise.

Tax cuts: Former tax revenue has to come from somewhere

The tax plan will add hundreds of billions to $2 trillion to the federal deficit according to Investopedia. That debt would be financed by selling more Treasury bonds.

A bigger supply of bonds would dampen investor demand. So rates would need to rise to keep investors buying.

Treasury bond rates don't guide mortgage rates, but another type of bond does: mortgage-backed securities.

A bigger supply of bonds, in general, would dampen demand. So rates would need to rise to keep investors buying. Higher rates on mortgage-backed securities mean higher rates for consumer mortgages.

So, should you take a "wait and see" attitude toward mortgage rates in 2018? Probably not.

This month's economic calendar

The next thirty days hold no shortage of market-moving news.

  • Wednesday, February 28: First speech from new Fed Chair Jerome Powell
  • Thursday, March 1: Personal Consumption Expenditures (the Fed's favored inflation reading)
  • Friday, March 9: Jobs Report, unemployment rate, wages
  • Friday, March 16: Housing Starts
  • Wednesday, March 21: FOMC meeting adjourns, forecasts released
  • Wednesday, March 28: GDP
  • Thursday, March 29: Personal Income and Outlays

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

What are today's mortgage rates?

Despite recent upticks, mortgage rates are holding historically low. Now could be the time to lock in, while rates in the mid-4s are still available.

Get a personalized mortgage rate analysis to see how much you can save.

Verify your new rate (Feb 23rd, 2018)

 

Selected sources:

http://money.cnn.com/2018/02/11/news/economy/trump-infrastructure-plan-details/index.html
https://www.bloomberg.com/markets/economic-calendar
https://www.bls.gov/news.release/empsit.nr0.htm

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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2018 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)