2017 Mortgage Rate Outlook: Can They Stay Low Forever?

It’s only been a few days since the Trumps took residence at the White House, but more than just the drapes in the Oval Office have been changed.  While I love discussing politics, the focus of this article is more about interest rates and what has happened and what is likely to happen with the new administration.  I turned to one of my great resources when it comes to mortgages, Vince Vassallo, Senior Loan Consultant at New American Funding, for a little Q&A session to get his read on what’g going on in the mortgage market and what he thinks is in store for 2017.

KD: What’s happening with mortgage rates?  

VV: The current mortgage climate shows rates higher than last month, with some price easing to start the new year. The markets continue to make corrections in all areas as the new administration takes office.  What the world, and the markets for that matter, will look like is still under debate. The 10-yr Treasury and mortgage rates have certainly felt the impact, with the 10-yr rising over 80 bps since Election Day and now has settled around 2.38% today, up 55 bps since November 7th.  

KD: If the economy grows like Trump promises, do you think mortgage rates will sky rocket?

VV: The future for interest rates is as unclear as the Trump administration’s policies on the economy.  The overall expectation is continued increases in the Fed Funds rate because that is what the Fed wants and needs in order to demonstrate US economic vitality.  Similarly, the new administration is focused on jobs and income growth so it will be hard to justify keeping interest rates low.  The overall trend is for increasing interest rates, but steadily, not suddenly.  Of interest is what effect the new administration’s stance on regulation will have on lending, investment and banking.  Too much and industry stagnates; too little and excessive risk enters the markets which could lead to catastrophic adjustments.  But these are big picture concerns that should not result in near-term market consequences.

KD: How’s the market for loans of $1m or more?

VV: The Jumbo/Super-Jumbo mortgage market is also feeling upward pricing pressure.  30-year fixed rate loans are now priced well into the 4’s where months ago they were below 4.0 percent.  The era of the 30-year 3 percent loan is past.  However, the primary loan program for this segment has been and will continue to be either the 7- or 10-year ARM with or without the Interest Only option.  Forecasts are that these will become even more dominant in this tier as lenders push them to increase their loan portfolio yields and borrowers continue to be attracted to their lower interest rates and payments.

KD: How do you see the mortgage market affecting real estate in 2017?

As far as the local real estate market is concerned, we anticipate activity cooling in the first quarter of 2017, which is a typical trend, exacerbated by the uncertainty of the new administration’s attitude towards regulation, the economy and fiscal policy.  The entry level and first-time move-up markets will remain competitive so long as inventory stays low and the buyer pool is constant.  The upper end will likely continue to soften.  Other factors to watch are job and household income growth.  As home prices and interest rates increase, the pressure on affordability likewise increases.  Until sellers experience buyer resistance as evidenced by longer listing times and lower offers, home pricing will remain on its upward trajectory in the near term.  But it is inevitable that this will change.
Vince Vassollo is a Senior Loan Consultant with New American Funding.  He can be reached directly at 310-919-9226 if you have any questions about new purchase lending or refinance loans.

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