Much has been made of the recent uptick in interest rates and many are worried about significant increases in mortgage rates in 2017. I have been asked countless times “What are interest rates going to do in 2017?”. Well, I’m not an economist or a predictor. However, the following analysis will offer some insight into what might happen with mortgage rates in 2017.
Three Reasons Behind Rising Mortgage Rates in 2017
Rates have risen approximately 1% across most loan products since election day. There are many reasons given for the rise. In my opinion, there are three main causes:
The Trump administration announced an intention to push an infrastructure spending bill
It is expected to be a positive force in the economy. However, history tells us that increased government spending leads to higher inflation. Higher inflation is accompanied by higher interest rates on everything from bank loans, credit cards, savings accounts, money market accounts and mortgage rates. They generally move hand in hand.
Economic indicators recently reflected increases, which is another inflationary sign.
Some examples of economic indicators include the Consumer Price Index(CPI) and Producers Price Index(PPI), which have recently reflected increases. Combine this with positive factors such as low unemployment rates and near 13-year highs in consumer confidence figures and you have the recipe for a stronger, improving economy. The strengthening economy will likely lead to increasing rates.
The stock market’s recent rise has placed pressure on the bond markets
Investors have choices on where they wish to invest their money. The bond market, often seen as a safer bet than the stock market, must still remain competitive for investor dollars. As such, bond rates must increase to compete with a rising stock market. Among those bonds are Mortgage Backed Securities (MBS), which are the backbone for determining consumer mortgage rates.
Rates May Continue to Change, But Not Drastically
In conclusion, an improving economy and rising stock market, while welcomed by most, tend to move interest rates higher. It doesn’t necessarily mean that rates will definitely continue to rise. However, mortgage rates tend to mirror overall economic conditions. Based on the current economic outlook, it will take catastrophic events like extreme weather events, terrorist attacks, acts of war or economic reports reflecting a significant change of course in the economy for rates to move drastically in either direction.
All in all, it’s important to keep perspective on our current rate environment. The chart below reflects average mortgage rates since 1971. It’s fairly obvious that by historical standards, it remains a great time to consider buying!
Originally published on David Brodsky Properties website. Lane Lauritsen(NMLS#1444991), a Senior Loan Officer and Production Manager at Mission Mortgage of Texas, has been in the financial services and real estate industry for over 15 years and a small business owner for over 15 years. He is a producing manager leading a team of loan originators at Mission’s corporate headquarters in Austin, Texas. In addition to a mortgage loan originators license, he also holds a Texas Real Estate Broker’s license and is a Certified Mortgage Planning Specialist (CMPS).
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