Rising mortgage rates will be the biggest market force in 2017, according to the latest Zillow Home Price Expectations Survey. Interest rates have been on the rise since last year and are expected to continue creeping up. Mortgage rates affect housing affordability and possible buyers’ willingness to take the big leap. Staying up to date on market factors like mortgage rates helps you advise clients and identify opportunities. This blog takes a quick look at mortgage rate forecasts for 2017 and other market trends.
4% for 2017
According to Freddie Mac, the average nationwide 30-year mortgage rate is around 4%, which is still historically low. It was 4.19% at the beginning of February and 4.16% for the week ending February 23rd, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS). A year ago it was at 3.62%.
Kiplinger expects the Fed to raise rates in the first half of 2017 and forecasts the average 30-year mortgage rate to hit 4.6% by year’s end.
Consumers expect mortgage rates to rise in 2017, a Fannie Mae survey found. Also, 89% think home prices will remain steady or rise. Consumers expect rents to increase by nearly 4%. Almost 70% of consumers would buy rather than rent.
What Does this Mean for Real Estate Consumers?
In 2017, your buyer clients can expect interest rates between 4 and 4.5%, depending on their credit score and other factors. A half percent difference in the interest rate can mean $80 month.
The historical average is 8.25%, so it is still a good time for mortgage shopping. Buyers might want to buy sooner before the expected mortgage rate increases later in the year.
But mortgage rate increases may make it harder for first time homebuyers in the mortgage qualifying process because they are more likely to depend on financing and have financial challenges. Also homeowners with lower interest rates may look at these increases and decide not to sell, meaning fewer homes on the market.
Rising interest rates threaten to squeeze potential homebuyers who cannot qualify at the higher rates out of the housing market. Adjustable rate mortgages (ARMs) have beginning interest rates as much as one to three percentage points below those of fixed-rate mortgages. Some lenders will make loans to homebuyers by qualifying them with the lower initial interest rates available on ARMs, even though the same borrowers could not qualify at the higher interest rates on a fixed-rate mortgage.
What Else is Ahead?
The National Association of REALTORS® forecasts a slowing market in 2017:
- 9% increase in home prices
- 9% increase in the sale of existing homes
- 3% increase in new home starts
- 5% homeownership rate
- 11% decrease in inventory in major metro areas
In addition to fewer houses for sale, NAR predicts fast markets. In the top metro markets, the median age of inventory is 68 days. This may be due to the effect the Internet is having on the process. Consumers have quick online comparative market analyses, pre-approvals, research, and virtual home tours at their fingertips before speaking to a real estate agent.
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