Interest Rate Outlook 2016-2017

Our Interest Rate Outlook 2016-2017

The obvious: Interest Rates are on their way Up!
As 2015 comes to a close in a few weeks, perhaps the most important move is yet to unfold: a rate hike?

Since 2009, the real estate market has benefited from a major advantage: lower prices coupled with lower interest rates. With rates in the low-to-mid Three-Percent range, home owners could refinance out of higher rates and put money back into their pocket and bank accounts. New home buyers benefited greatly from two major forces at work together. Several homes went through foreclosure and presented even greater buying power for those on the sidelines. Yet that’s about to change.

The Fed (Federal Open Market Committee) has been floating a potential rise in  interest rates for several months. The reaction from the stock market has been all over the board. But the general consensus is that rates must rise soon and cannot stay at zero forever. The days of QE (Quantitative Easy) are over and it’s time for a shift in monetary policy. This means that the coveted interest rate affecting home buyers will also be changing.

How much will rates rise?
As of this fall (2015), most analysts predict the Fed will take action and raise them up 0.25%. Economists are about 80% certain this will occur before the end of the year. The last meeting of the year occurs on December 15-16 2015. The calendar is set and all eyes are set upon this key meeting. Again, it may be pushed off till next year, but everyday, the sentiment increases toward a vote for yes – to bump rates the 1/4 point.

If they raise the interest rate, will that translate into a rate hike for mortgages? That is what makes mortgage rates fascinating to track and monitor. While it’s important to note is that mortgages are more closely tied to the 10-year U.S. Treasury note than federal funds rate which is what banks charge each other to lend funds.

While a late 2015 rise from the Fed will move the rates higher from the high three-percent range steadily into the four-percent range, it may not be what you’d expect.

An increase of 25 basis points (1/4 point) on a mortgage loan of $250,000 increased the mortgage payment by $35.

So what does a rate increase mean on the real estate market?
This depends on the amount you plan to mortgage. In other words, the price you can qualify for and plan to spend on your next home. But a rate increase is not as impactful when rates are low compared to when they are high. Let’s explain.

Should I buy now?
That depends. The end of the year always offers a great time for home buyers to find a great home that had to be priced aggressively to vie for attention during a slightly slower time of year. If you want to time a rate increase, the time is now to buy.

What’s the mortgage interest rate outlook for 2017 and 2018?
According to the NAHB, the 30-year mortgage will hit 4.5 percent (4.5%) next year and 5.5 percent (5.5%) in 2017.

While Interest Rate Outlook 2016-2017 reveals rates will likely increase over the coming months, the most drastic rise may not occur in the next few months but well into next year (2016) and more importantly back to the five-range in 2017. So if you’re in the market, work with your mortgage lender, real estate agent and get out there. It’s a great real estate market that’s very approachable for most people.

Get in contact with your Home Marketsite Real Estate agent today.

Additional commentary from
According to Jonathan Smoke, chief economist at, “the Fed decision is symbol over substance as far as immediate direct impact to mortgage rates go. Their move will impact the consumer and the broader perception and expectations for rates given how much attention is paid to the Fed and this particular decision.” Smoke adds, “in aggregate I think the near-term impact is negligible if not positive. The number two reason active home shoppers cited why they were in the market for a home this summer was ‘favorable interest rates.”

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