Are mortgage interest rates rising or falling in 2017?

Home buyers and borrowers are wondering what the mortgage interest rates trend will be in 2017, so they can time their purchase or refinance. While trying to time mortgage market moves is dicey, the consensus from leading economists is that the outlook for interest rates won’t be the 5 percent projected by most at the end of 2016. Instead, most economists are seeing mortgage interest rates peak somewhere around 4.5 percent.

Here’s what some of the leading housing economists are thinking about when it comes to mortgage interest rates trends for 2017:

2017 Mortgage Trend #1: The Federal Reserve is Going Slow

Many real estate economists are noticing that mortgage rates are edging downward. According to Jonathan Smoke, Chief Economist for, mortgage interest rates are impacted by many factors that aren’t always easy to predict, but at least recently the movement has been easier to understand.

“Rates moved up substantially after the election in anticipation of more inflation to come combined with long-overdue expectation of the Federal Reserve moving up short term rates. But when they did move, long term rates had moved even more substantially and way more than the inflation data would suggest was appropriate. Thankfully the trend in January was generally sideways,” Smoke noted.

“I believe the more recent decline was a result of the Federal Reserve announcement [recently] affirming continued patience in further rate moves until clear evidence emerges regarding inflation, and then the January employment report showed higher unemployment and no evidence of inflationary wage pressures,” he added.

2017 Mortgage Trend #2: Political Instability in the U.S. Will Continue to Affect Mortgage Interest Rates

According to Dan Gjeldum, Senior Vice President of Mortgage Lending for Guaranteed Rate, the mortgage rate environment has been a relatively easy one to predict over the past few years.

“There wasn’t much to get excited about from an economic standpoint (a so-so economy means rates remain low). We had some excitement in the markets (Brexit) and then all of a sudden, we have an unexpected change in the Oval Office. Beginning on Wednesday of Election week, the selloff in the mortgage backed security market (the true benchmark for mortgage rates) caused rates to rise faster than we saw in a decade,” he said.

“With the Trump trade wearing off a little bit, we are seeing money move back into mortgage bonds and interest rates are coming back down a little. I think that we will remain stuck in a .25 percent range for the remainder of the year. Up a quarter, down a quarter, back up. It’s just a cycle that keeps us in the low to mid 4s in the 30-year market,” he added.

Smoke agrees. “We’ve seen many up and down days of 5 basis points or more changes as the financial markets try to digest the likely policies and economic implications of the new administration, but the week-to-week movement has been flat,” he said.

“We’ve had the election and a fair amount of uncertainty as to what the policy landscape will look at from the perspective of taxes, infrastructure, trade or individual or corporate taxes, said Mark Palim, Vice President and Deputy Chief Economist at Fannie Mae. “All of these are significant items when thinking about economic growth and position of consumers affording rent or mortgage.”

2017 Mortgage Trend #3: Political Uncertainty Abroad Means a Continued Flight-To-Quality in the U.S.

“While mortgage rates certainly could top 5 percent by the end of 2017, we don’t forecast them to go so high,” explains Leonard Kiefer, Quantitative Analytics Director at Freddie Mac.

“Uncertainty abroad could drive a flight-to-quality and drive down U.S. Treasury yields like it did following last year’s Brexit vote. It’s hard to predict how the various elections in Europe this year will play out, but uncertainty about those outcomes could contribute to downward pressure on long-term rates here in the U.S.,” he said.

2017 Mortgage Trend #4: No Real Inflation This Year, But Watch Out in 2018

In the run-up to the election, President Trump promised to invest in infrastructure. While many workers welcomed the news of a huge infrastructure spending bill, economists are concerned what impact that sort of spending would have on inflation and, secondarily, on interest rates.

The good news for borrowers this year is the effects of such a spending package wouldn’t affect the economy until next year.
“While we do see inflation picking up, many of the inflationary impacts of expansionary fiscal policy are unlikely to hit the U.S. economy in 2017. If a major bill is passed, its main impact is likely to be in 2018 or later,” explained Kiefer.

2017 Mortgage Trend #5: Quantitative Easing (QE) Might End in 2017 in the U.S. and Europe

“Economic growth here looks solid and continued employment gains will eventually lead to higher wage pressures. Quantitative easing in Europe is getting closer to its taper moment and the Federal Reserve may start reducing its holdings of mortgage backed securities,” noted Smoke.

“A range of possible fiscal policies being discussed by the new administration would likely lead to higher inflation. All of these things would lead to higher rates. So the best assumption to make is that rates will trend higher and we likely have a narrow window of time before we start to see sustainable movement up again,” he said, adding “It’s a bit of a stretch to think we could get through the spring housing market without seeing rates higher than they are today as expectations for higher rates will build as the year progresses.”