Will Mortgage Rates Go Up or Down in 2016? Eight Leading Experts present their own Mortgage Rate Forecast.
“I Can’t Picture a Significant Rate Increase”
Colin Robertson, creator of popular mortgage blog TheTruthAboutMortgage.com
It’s always hard to predict which way mortgage rates will go because a lot of unforeseen events can transpire over the course of 365 days.
In just the last few weeks of 2015, global tensions reached a boiling point, which certainly throws a lot of question marks back into the economy.
Put simply, more economic uncertainty leads to lower interest rates, whereas when things are clearly moving in the right direction, rates may rise to stem inflation.
At the end of the day, there’s still a huge lack of confidence in the economy and even the Fed recognizes that.
Their decision to not raise rates meeting after meeting in 2015 is a big clue. Yes, they probably will finally raise rates 25 basis points in December 2015 or shortly thereafter, but will do so reluctantly.
The very fact that they’re not fully behind a rate increase tells me that they’re not confident about the supposed economic recovery that has taken place since the worst housing/financial crisis in recent history.
Having said that, we may see a slight rise in mortgage rates in 2016 if economic data continues to be positive, but I can’t picture a significant increase.
Most market pundits only see the 30-year fixed climbing to around 4.5% from its current level of around 4%. It may not even do that and could in fact fall below 4% again depending on what takes place next year.
In other words, don’t panic. It appears as if mortgage rates will stay low in 2016 and beyond.
Mortgage Rate Forecast : “4.75% range by the end of 2016”
Brad Yzermans, California loan officer and creator of HomeLoanArtist.com
In 2016, I am confident that mortgage rates will rise by at least .375% and likely be in the 4.75% range by the end of 2016. Here are the primary reasons for that forecast.
1. Janet Yellen, the Federal Reserve Chairperson, announced in the fall of 2015 that she intends to change the government’s stimulus policy and raise the Federal Funds rate despite there being many financial indicators and reports that reveal our economy is much weaker than we all know that it really is.
2. The conspiracy theorist in me thinks the economic data (jobs & unemployment report, inflation, consumer confidence, etc…) will somehow find a way to report that our economy is growing and cause bond and treasury prices to soften.
3. Freddie Mac forecasted mortgage rates would rise above 4% by the end of 2015 and they did. Now it anticipates an increase to 5% by the end of 2016. I figure those guys have a fairly good idea of what’s going on, so perhaps we should listen to them.
Will the 2016 Presidential Election Impact Mortgage Rates?
There is no historical evidence that supports mortgage rates consistently go either up or down in a presidential election year.
But one prediction I know will be 100% correct is that mortgage brokers and loan officers across the country will use fear and claim mortgage rates always rise in an election year in order to persuade people to take action and refinance or buy.
Is it Possible Mortgage rates Could go Down?
Anything is possible in this industry. But I think the only thing that could cause mortgage rates to go lower is some sort of world political event, or catastrophe, or major terrorist attack.
Something like this could strike fear into the financial markets and trigger a flight to safety with investor money and cause bond and treasury prices to rise. As bond prices rise, mortgage interest rates fall.
How will Higher Rates in 2016 Impact us?
Higher mortgage interest rates means the cost of housing will rise and make housing less affordable. Higher rates mean higher mortgage payments and fewer people qualifying for higher loan amounts. That in turn slows down home appreciation. So a trade-off of higher rates could be lower home prices.
“Expect a Trickle-down Effect after the Fed Rate Hike”
Luke Skar, mortgage strategist at MadisonMortgageGuys.com
As 2015 ends, we look to the New Year and wonder how mortgage rates will be affected. A few positive trends from the past few years indicate that mortgage rates may rise, but only slightly.
Home Prices are On the Rise
According to Lawrence Yun, the top economic analyst at the National Association of Realtors, the year 2015 showed the best results since the beginning of the recession. With a strong job market that has improved steadily for the past 3 years, more people bought homes in 2015 than in previous years.
However, new home construction is still a bit low in comparison to demand. The shortfall of supply vs demand will lead to slightly higher home prices.
The Fed is Pondering a Move in Rates
The Federal Reserve has anticipated moving the federal funds rate in late 2015 or the first quarter of 2016. Although the federal rate is not the same as mortgage interest rates, this move can spark a bit of activity through bond markets. Raising the Fed rate has a trickle-down effect that normally results in higher mortgage rates.
Rates Will Likely not Move Substantially
Although an increase by the Federal Reserve could force mortgage rates higher, most analysts do not pose a mortgage rate forecast including huge rate increases.
Experts from the Mortgage Bankers Association are quick to point out that the Fed has made very few changes to their interest rate over the last few years. Any move that they may make within the next 3 to 6 months would be a slight adjustment.
All in all, it would seem that the low mortgage rates that have hovered around 4% for over a year now will likely stay at that range and possibly a bit higher.
“As Rates Rise, Go For an Assumable Mortgage in 2016”
Justin McHood, mortgage commentator at BlownMortgage.com
Most experts predict that in 2016, the Fed will begin to raise the discount rate at a measured pace and I don’t see a reason to disagree with these predictions.
As the discount rate rises I expect the mortgage rate trend to rise as well, but nothing that I would consider “dramatic”. If mortgage rates spent 2015 in the “high-3’s to low-4’s” range, my mortgage rate forecast would include rates in the “low 4’s to low 5’s” in 2016.
In the event that mortgage rates do rise in 2016 at a measured pace, I wouldn’t expect it to impact the affordability of housing to an extent that home prices are impacted dramatically. I expect home prices to continue to appreciate slowly in 2016 and affordability to go down, but only slightly.
One thought for consumers thinking about a mortgage in 2016: it may be worth exploring the idea of getting a mortgage that is “assumable” in the future.
An assumable mortgage is one that can be handed over to another individual at the same rate and terms. Typically only FHA and VA loans are assumable, but some conventional loans are too.
Imagine that rates continue to rise over the next few years and housing affordability goes down. If you find yourself in the position that it is time to sell your home, that 4% assumable mortgage can turn out to be quite the selling feature if rates at that point are at 8%.
Mortgage Rate Forecast : “Market will continue to Surprise in 2016; Consider ARM Loans”
Sean Young, Colorado loan officer and mortgage blogger at MyLenderSean.com
Everyone predicted rates would rise in 2015, but it was another great year for mortgage interest rates.
Not surprisingly, mortgage professionals and other experts predict that mortgage interest rates will go up in 2016. Here are some reasons these predictions might stick this time.
Towards the end of the fourth quarter of 2015 we have already seen a slight rise in mortgage interest rates. With news that the Federal Reserve will be raising the federal funds rate this December or the first quarter of 2016 we will move into 2016 with slightly higher rates. The economy is doing better now with unexpectedly high job growth reported last month.
The Fed Doesn’t Control Mortgage Rates
Keep in mind when you hear about the Fed raising interest rates, they are not talking about mortgage interest rates. They are talking about the federal funds rate.
The Fed does not control or determine mortgage interest rates. But, when the Fed does raise the federal funds rate it could affect how investors buy and sell stocks and bonds. If investors buy more stocks and less bonds like mortgage backed securities, mortgage interest rates could rise.
How much will depend on many factors, including, but not limited to how the market responds to the federal funds rate increase, ongoing unemployment figures, demand for the US dollar, inflation and the global economy. Freddie Mac’s Economic and Housing Market Outlook predicts mortgage interest rates to go from 4.00% in the first quarter up to 4.60% by the fourth quarter.
Lower Rates in the Short Term?
I believe by the end of 2016 we will see mortgage interest rates 0.50% to 0.75% higher than where they are currently. However, this will be a slow process and we may even see an opportunity for rates to drop. We have seen some surprising results with the mortgage backed securities market in 2015 and I think investors will continue to surprise us in 2016.
Don’t Rule Out Adjustable Rate Mortgages
What if mortgage interest rates do raise 0.60 basis points? Well in all honesty, you would still be getting a great rate. But, this may also be an opportunity to look at other loan programs besides a 30-year fixed.
You should look at your particular situation and get a loan based on your short term and long term goals and needs. The 5/1 (fixed for 5-years) or 7/1 (fixed for 7-years) adjustable rate mortgage (ARM) may end up being the perfect option for you, saving you thousands per year.
Review different options with your loan officer to see what loan best fits your needs. You may be very surprised with your options, rates and results.
“Why Risk Higher Rates and Home Prices? Capture Today’s Market.”
Tom Pessemier, Vice President of Mortgage Lending at Guaranteed Rate, Sarasota, Florida.
I’ve been in the mortgage business more than 12 years and I feel a great sense of responsibility when someone asks me which direction the market is headed.
The most truthful answer to that question is that all of the experts have been wrong from time to time. All we know for sure is what we have in front of us right now.
That said, most analysts agree that there is a lot of potential volatility ahead and that mortgage rates are geared up for a gradual increase of one-half to one percent increase in 2016.
Financial markets aren’t meant to be as nice to us as they’ve been over the past several years…not that I’m complaining.
Rates can move rapidly – often in the wrong direction. Toward the end of 2015 we saw the biggest swing in about three years. Rates increased by less than one eight of a percent – insignificant in the scheme of things. Still, it can be a big deal to a home shopper. Expect more of these unexpected swings in 2016.
Will the New President Change Rates? Don’t Hold your Breath.
As we look to the future, we have a presidential election coming up in 2016. Historically, what does this mean? Actually nothing. The reality is that those in office can’t make huge policy changes quickly. If they could it would be easy to get elected by reducing rates. But that sounds like something other than the type of government we enjoy here in the U.S. – so thankfully onward we go as we are.
Look at Mortgage Market Improvements, not just Rates
Mortgage rates are just one aspect of the mortgage lending marketplace. There are other factors that play into projections when someone asks me whether to buy or wait:
1. Mortgage guidelines have been slowly loosening up – allowing us to help a wider group of buyers and refinance clients. If you weren’t able to accomplish your goals last time, and it’s been several months – try again.
2. Real estate values continue to appreciate across the country (different in each market, but strong almost everywhere). That appreciation appears to be honest and built on true supply and demand and an improving U.S. economy. I believe this growth will be sustained as the market continues to normalize from the financial crisis that began in 2007.
To boil all of the above down for you, buying a home now will lock in current low rates and home values for you – despite what happens to the overall market. That is the best bet from everything we know right now, as rates and values seem to be moving up modestly to aggressively.
Will the future look good if you wait? I’m pulling for you – but if you’re not a homeowner, I’d suggest doing something about that as soon possible.
“Higher Rates Won’t Affect Consumers in a Great Economy”
Bill Ladewig, loan officer and FHA expert at YourFhaGuru.com
When consumers feel good about their jobs and the economy in general they will pay whatever rate the market requires to purchase their home. Conversely, if consumers are not comfortable with the economy they will not borrow when rates are at historic lows.
So, what is going to happen to rates in 2016?
In December 2015 mortgage rates are holding at slightly under 4.00%
According to Fannie Mae’s National Housing Survey, 51% of consumers think mortgage rates are on the way up, and another 44% believe rates will remain within their current range.
The survey, which covers 1,000 households, is meant to measure changing consumer attitudes toward housing and mortgages nationwide.
In my opinion, interest rates are headed up, but at a fairly mild pace. The Federal Reserve is expected to increase the Fed rate this month and will start pushing short-term rates up this summer, probably in June. Mortgage rates should peak in 2016 about 4.50%
“Still a Strong Case for Lower Mortgage Rates in 2016”
Tim Lucas, mortgage expert at MyMortgageInsider.com
Well, it’s unanimous – rates will rise in 2016. All of my friends in this article plus countless analysts say so.
But I’d like to propose a counter argument if for nothing else a chance to redeem myself after my dead-wrong 2015 rate predictions.
There is still a strong case for lower rates in 2016.
The Fed rate increase is almost certain by early 2016. But that doesn’t mean higher mortgage rates. Mortgage investors price Fed rate hikes into the market months before they happen. Yet rates are only 0.20% higher than they were when a rate increase was still a question mark.
In late 2014 the Fed pulled out of the quantitative easing program that kept rates artificially low. But rates actually dropped by about 0.50% at the end of that year.
This example stands as solid evidence that world unrest and/or a shaky U.S. economy can affect rates more than Fed policy.
Mortgage backed securities drive mortgage rate levels. In short, uncertainty breeds higher demand for these securities. Higher demand produces lower mortgage rates.
A significant world event could drive down rates in 2016. In the past we’ve seen rates drop when wars break out and governments topple. A less significant event such as an economic downturn in China can cause investors worldwide to pile into “safe” investments like U.S. mortgage backed securities.
Perhaps when we get into 2016 we’ll discover that the U.S. economy is not as strong as everyone thinks. While no one hopes for such a thing, it would drive down rates or at least keep them at the 4% range through 2016.
If I were buying or refinancing would I gamble on lower rates? Probably not. The typical mortgage rate forecast is seldom correct. But if you are not in a position to apply for a mortgage right now, it’s not the end of the world. You could still end up with a very low rate well into 2016 and beyond.
Ready for a Rate Quote?
If you’re ready to check today’s rates and get started on your homeownership or refinancing goals, now’s a great time.