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Current Low Mortgage Rates Won’t Stay Low for Long

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Mortgage rates slowly drifted higher this week. Average 30 year conforming mortgage rates increased to 4.16 percent, up from 4.10 percent last week. Overall, average 30 year mortgage rates haven't changed since the beginning of 2017. On January 1st, average 30 year rates were at 4.16 percent, not far from today's average.

Mortgage rates won't stay low forever. In fact, rates may start creeping up as early as next week. The Fed meets next week and is widely expected to increase the federal funds rate by 0.25 percent, which will put upward pressure on mortgage rates.

Although mortgage rates are not directly tied to the federal funds rate, they usually move in tandem - either higher or lower because of bond yields. In this case, when the Fed increases the fed funds rate bond yields move higher and as a result, mortgage rates move higher.

If the fed funds rate is increased by 0.25 basis points, average mortgage rates won't increase by the same amount. There will be more upward pressure on shorter term adjustable mortgage rates than long term fixed mortgage rates.

The Fed is also expected to increase the rate at least two more times in 2017. The end result is that mortgage rates are going up in 2017 and in the years to come. In the most recent MBR Mortgage Finance Forecast released by the Mortgage Bankers Association, average 30 year mortgage rates are expected to hit 4.70 percent by the end of 2017. By the end of 2018, 30 year rates are forecast to hit 5.10 percent.






 
Author: Brian McKay
March 15th, 2017