Mortgage Rates in 2017: What to Expect

What's going to happen to mortgage rates in 2017? Well, we've polished the crystal ball, have read the tarot cards and tea leaves, and can now definitively tell you they're going to go up. Unless they fall. Or end the year precisely where they started.

You don't need a Nobel Prize in economics to know that nobody can be sure what's going to happen. All you can do is what rich and successful businesspeople and investors do: listen to experts' predictions, knowing they're frequently wrong, and overlay those with your own insights and instincts.

What Experts Predict: Mortgage Rates in 2017

Some organizations keep whole teams of economists on their payrolls dedicated to monitoring housing and economic data, and creating sophisticated forecasting models to project trends. You might expect the following, based on December 2016 or January 2017 reports, to include some of the most accurate predictions possible for nationwide average rates for the benchmark 30-year, fixed-rate mortgage:

  • Fannie Mae – That average is going to stay at 4.2 percent for the first nine months of the year, and then inch up to 4.3 percent in the last quarter
  • Freddie Mac – Seems for now to have given up on quarterly forecasts, but expects an average of 4.4 percent through 2017
  • Mortgage Bankers Association – The rate's going to average 4.3 percent in the first quarter, and then edge up in each succeeding quarter, reaching 4.7 percent in the last three months of this year
  • National Association of Realtors – Predicts mortgage rates of "around" 4.6 percent by the end of 2017
  • National Association of Home Builders – Reckons the rate will average 4.54 percent through the year, which implies a significant rise over levels so far seen in the first quarter

You may notice a lack of unanimity here, although they all have one thing in common: They predict a slight or moderate rise this year.

Why They Differ

More than most others, mortgage rates are determined by market forces responding to the economy. That's why they can move up and down so much during a single day.

When the U.S. and global economies are doing well, those rates tend to rise. That's because investors feel confident, and want to put their money into riskier but more lucrative investments, and that chokes off the supply of cash to mortgage lenders. When those economies are looking risky, they run scared into safe havens, which include U.S. Treasury bonds and American mortgages. You'll remember from Economics 101 that, given constant demand, an extra supply of something (in this case, cash for mortgages) will reduce the price (in this case, rates).

Of course, most interest rates respond to the wider economy, but they tend to do so periodically, as the Federal Reserve steps in to stimulate a cooling economy by lowering its rates or rein in one that's in danger of overheating by hiking them. Rates for new mortgages aren't directly affected by these Fed changes, except to the extent they either spook or allay the fears of investors.

All this means forecasting mortgage rates involves forecasting what's going to happen to both our domestic economy and the wider global one. It's time to roll out yet again this writer's favorite quote, from the late Harvard economist John Kenneth Galbraith, who noted, "The only function of economic forecasting is to make astrology look respectable."

Investors and the Serengeti

It's generally a mistake to see global financial markets as perfect mechanisms – peopled by informed, rational players who are driven by competition and self-interest – in the shape of Adam Smith's "invisible hand."

Follow those markets for any period of time, and those players more closely resemble a motley collection of herbivores drinking greedily at an African watering hole. For ages, they're too busy slaking their thirst to notice the pride of lions picking off the weakest among their number or the cheetah stalking them. Then one glances up and notices a floating log, which he mistakes for a crocodile. And the next thing you know, they're stampeding – and are halfway across the Serengeti by the time their panic subsides.

What Will Move Mortgage Rates in 2017?

In other words, investors, analysts, traders, bankers and others so on often fail to respond to real dangers while panicking over imagined ones. And that makes predicting how markets will move close to impossible. Still, here are three things to look out for in 2017, remembering that bad news and uncertainty tend to drive mortgage rates down, while confidence and good news usually pushes them up:

  1. How the domestic economy performs this year – Many investors welcomed the election victory because of a promised business-friendly agenda, including massive deregulation and huge spending on infrastructure. That's why mortgage rates rose after the election. However, some have concerns over the ability to implement all that, and the longer-term consequences of some of the key policies, including letting the deficit rise.
  2. How the global economy does – Many of the issues that spooked investors in recent years (Brexit, Greek debt, China's uneven growth...) remain potential economic flash points. And there are plenty of new possible dangers out there.
  3. Geopolitical worries – War and the fear of war are rarely good for investor confidence. The South China Sea and Ukraine currently look particularly ominous.

If you'd like to keep up with what's happening to mortgage rates in 2017 and why they're moving, stop by LendingTree's daily Mortgage Rate Lock Recommendation, which tracks these things in detail.

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