2017 started off well for mortgage shoppers as rates saw their first decline in over 10 weeks. The average interest rate on a 30-year fixed rate mortgage fell by 0.12 percent to 4.20 percent, according to Freddie Mac. Rates have been on the rise since the end of the 2016 presidential election. Freddie Mac surveys 125 lenders every week to produce a snapshot of the state of the current mortgage interest rate market.
Mortgage analysts speculate that the sudden rise in mortgage rates from historical lows was an overreaction to the results of the presidential election. In December, The Mortgage Reports predicted that the first week of January could see a rapid decline in interest rates. Interest rates rose nearly one full percent from the time of the presidential election until the end of 2016. The 30-year fixed rate mortgage benchmark closed out 2016 at around 4.32 percent. The average benchmark rate throughout the past 52 weeks hovered around 3.72 percent, according to Bankrate.
The benchmark interest rate on a 15-year fixed-rate mortgage also fell this past week to 3.45 percent from 3.57 percent. 5/1 adjustable-rate mortgages also saw a decline this past week as rates fell from 3.57 percent to 3.50 percent. The rates on Jumbo loans, which are mortgages in excess of $420,000, dropped from 4.37 percent to 4.28 percent. The interest rates on jumbo loans tend to run higher as lenders take on more risk when they approve higher loan amounts.
The Federal Reserve raised the target benchmark interest rate by one-quarter of a point in December, but most banks and mortgage lenders expected the increase. Fed chairwoman Janet Yellen announced that she expects three more increases throughout the course of 2017, but some economists speculate that economic growth in the U.S. will not support three rate hikes. However, with Donald Trump as president and a Congress controlled by Republicans, there is likely to be heavy tax cuts on the horizon, which could drive mortgage interest rates higher. Some economists feel that rates on 30-year fixed-rate mortgages could go as high as 4.6 percent.
Most economists use the yield on the 10-year Treasury note as a benchmark indicator for mortgage interest rates. Therefore, if the yield on Treasury notes trends upward in 2017, mortgage interest rates could follow suit. Since the Federal Reserve’s portfolio of assets holds nearly 41 percent in mortgage-backed securities, rates could rise based on what the Fed decides to do with those securities in 2017.