Future forecast of home interest rates

It is clear that interest rates over the past eight years have been historically the lowest they have ever been and most likely ever will be. With rates under 4%, the time has never been better to purchase a home or refinance. You could save tens of thousands over the lifetime of the loan. However, times are changing. With a recovering economy and stronger job market, the Federal government is looking to slowly but surely increase rates.    

Due to the poor state of the economy and the volatility of the housing market after the 2008 financial crisis, the government has kept the 30-year fixed-rate mortgage at historic lows. Even with the gradual economic recovery, the government wants to tread carefully so as to not derail the progress. However, the Fed is most likely going to raise rates from 4.25% to 4.50% by the end of the year. Future forecasts give the impression that rates will continue to rise in 2018 and break the 5% threshold.

Change in mortgage rates can also be tied to mortgage backed securities held by the government. When the economy was on shaky ground, the government bought up mortgage backed securities to assist in lowering short-term mortgage rates to almost nothing to help boost home purchasing. This raised bond prices, which in turn lowered returns. Now the government is trying to shrink its portfolio of $1.7 trillion in these securities. The shrinking of these securities puts pressure to up the mortgage rates.

A more uncertain but major possible impact on mortgage rates is if the Trump administration and current Congress will be able to pass the major tax reform legislation they have been pushing for. If passed, it will severely reduce tax rates and regulations. This will in turn create a ripple effect of accelerated job creation, possible wage growth, and an economic boom. A much more active and stronger economy means more people with more money. This in turn can prod the government to not only raise the mortgage rates higher but on a quicker timeline.

These are just some of the factors and possibilities that can and will impact the rising mortgage rates. Barring a major setback in the economy, there is almost a guarantee that a full percentage point will be added before the end of 2018, if not sooner. The days of 3.25% rates are for better or for worse, over.