What’s the Future for Mortgage Rates in 2017?

It’s been a wild ride for interest rates over recent years because of political and economic uncertainty at home and abroad and the lingering effects of the financial crisis of 2008. Where are mortgage rates headed in the future? Honestly, it’s anybody’s guess. The Federal Reserve could raise rates, then a so-called black swan event abroad could just push them back down again.

With that said, here’s a few things you can look out for as we move into the end of 2016 and beyond:

  1. The Federal Reserve could raise interest rates. Federal Reserve officials narrowly voted to hold rates steady at the September 2016 meeting, but left open the possibility of raising rates in the near future. Keep in mind that the Fed has been talking like this for years and only so far has raised rates a modest 0.25% (December 2015) from historic lows reached after the financial crisis of 2008. Whether the Fed actually raises rates or not is anybody’s guess, but it probably will take a significant rate increase to adversely impact mortgage rates over the long term. Mortgage rates hit historic lows yet again this year despite the rate increase last December.
  2. Unexpected economic or political events abroad. Britain shocked the world and financial markets by voting to leave the European Union last June. The ensuing economic uncertainty spooked investors and caused a mad rush into US assets that drove mortgage rates to some of the lowest levels seen this year. A similar unexpected political or economic event in 2017 could push mortgage rates down yet again. There are plenty of possible events that could cause this: the bankruptcy of a big European bank, a financial dislocation in heavily indebted China, or another vote to exit the EU (Italy is holding a referendum on December 5, 2016 that has the potential to lead to an EU exit).
  3. Fiscal uncertainty in the United States. It’s no secret the United States government is seriously buried in debt. Another debt ceiling vote looms early in 2017 and if global investors begin to worry about the ability of the US government to meet its obligations, it’s possible they could shun US assets and cause interest rates to rise. The new incoming administration plans to cut taxes and increase infrastructure spending, which could make the US government’s fiscal outlook even worse.
  4. Rising inflation. The biggest driver of interest rates will likely be inflation expectations. The Federal Reserve has created massive amounts of new money over the last 8 years to stimulate the economy, but inflation has stayed surprisingly low. If higher inflation begins to take hold (which can happen with accommodative monetary policy), the Federal Reserve may be forced to increase rates to get inflation under control. Investors will also demand higher interest rates to offset the effects of inflation on returns.

If you’re in the market to refinance your mortgage and have been quoted a great deal, get it locked in and move forward. Interest rates probably have more upside than downside at this point because they’ve been so low for so long. If rates drop further, you can always look at refinancing again.

 

 

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