In the past quarter, we have seen mortgage rates hit their highest at 4.5% last week. As the rates have calmed a bit going into this week, it begs the question: could we see 5% mortgage rates in the near future, possible as soon as this year. In order for the rates to continue to rise, there are a number of factors that we can look into for signals.
The Federal Reserve’s Decision
If the Fed decides to raise interest rates in March, many analysts expect the mortgage rates to increase as well. Mortgage interest rates have been rising consistently. In a growing economy, there is chance that the Fed could not only raise the interest rates, but also raise them multiple times this year. Surely, the Federal Reserve’s decision would have a macro impact on the overall economy and a direct impact on how the housing market rates respond. The decision is one of the clearest signals that we can look for in the coming year.
10 Year Treasury Notes
Since mortgage rates and the 10-Year yield is virtually tied, an increase in the treasury notes could dictate a rise in rates. Most recently, we have seen a high rise in the 10-yr yield to 2.89%. If these yields continue to rise, we might see upward movement of mortgage rates too. Quite possibly, both treasury notes and mortgage rates could continue to rise over the course of 2018. By the end of the year, we could be very close or at a 5% mortgage rate.
Economic Growth Outlook
Next, the overall economic growth outlook would hint towards higher mortgage rates too. When looking at the jobs growth, credit availability and unemployment rates, the economy is definitely heating up. While this is great for businesses and employees, it might require a raise in mortgage rates to keep growth from speeding up too quickly. On top of that, a positively received tax bill could further demand increases in rates to keep the economy in check.
Changes In Credit Standards
The credit standards dictate how many people are eligible for loans. If the standards were to be relaxed, then the mortgage rates may become more competitive. Since we don’t expect the mortgage industry to relax the standards for loan approvals and allow more loans to close, the chances are pretty good that the higher mortgage rates will be supported by the upheld credit standards. Further, the government is working to make those standards clear with the Mortgage Choice Act. Surely, 5% mortgage rates are better when they are loaned to qualified candidates.
Housing Market Trends
Of course, we can watch the number of houses being sold. As the millennials enter the housing market, there is more demand on the buyer side. If the mortgage rates do continue to rise, it might put pressure on buyers to get a moving quote faster. There are many other factors like property taxes, credit and inventory available. However, the overall buyers market could contribute to the overall rising of mortgage rates. If the buying climate becomes more competitive, the rates may also rise indirectly.
While many in the real estate industry are speculating on the rising mortgage rates, you can use these signs to get an idea of the facts. Pay attention to the Federal Reserve’s decisions, 10 Year Treasury notes, overall economic outlook and credit standards. Obviously, you should keep the housing market in mind too. With the right mix of factors, we could very well see mortgage rates rise to 5% in the next year or two.