Rick BissonLate last year most housing analysts expected the benchmark 30-year fixed-rate mortgage interest rate would average about 4.50 percent throughout 2017. Instead, it’s been 4.05 percent with many indications that rates will prevail for the remainder of the year.

According to data released by Freddie Mac on Aug. 18, the interest rate on a 30-year fixed-rate average mortgage slipped to 3.89 percent with an average 0.4 points. Points are fees paid to a lender equal to 1 percent of the loan amount. One week ago the average interest rate on a 30-year fixed rate mortgage was 3.90 percent. One year ago it was 3.43 percent.

Looking at interest rates on 15-year fixed-rate mortgages, the average dropped to 3.16 percent with an average 0.5 points. It was 3.18 percent a week ago and 2.74 percent a year ago. The five-year adjustable rate average moved slightly higher to 3.16 percent with an average 0.4 points. It was 3.14 percent a week ago and 2.76 percent a year ago.

A sharp drop in rates usually prompts homeowners to refinance. However, those applications rose just 2 percent for the week and are still down 40 percent from the same week one year ago, when rates were lower. This cool off in refinancing may be a result of the many mortgage holders who refinanced when rates were at rock-bottom.

Mortgage Bankers Association reports the total volume of mortgage applications – including refinancing and home purchases – increased by a mere 0.1 percent when comparing week-over-week results. Looking back a year ago, the total volume of mortgage application loans is nearly 22 percent lower.

“Last week, mortgage rates dropped to their lowest level since the week of the November 2016 election as investors sought safety given the tense geopolitical environment, especially the concerns with respect to North Korea,” says Mike Fratantoni, Mortgage Bankers Association’s chief economist.

One key factor why lower mortgage interest rates weren’t enough to bring more home buyers into the market is the shortage of homes for sale, which continues to push home prices upward.

One sign that buyers are struggling increasingly with high home prices is the jump in adjustable rate mortgage applications, which offer a lower interest rate. The volume of adjustable rate mortgages, or ARMs, is now 13 percent higher than a year ago. In addition, FHA loan applications to purchase a home are only up 4 percent from a year ago.

FHA loans are a favorite among young, first-time buyers with less money to put down on a home.
Before this third short-term rate hike in just six months, fixed-rate mortgages were barely off 2017 lows. Experts have been predicting a gradual rise in home loan interest rates for months, but rates have head-faked their way lower since the Fed’s last rate increase in March.

“Even though the U.S. economy is really looking pretty strong right now, particularly in the job market, the rest of the world is lagging behind,” says Fratantoni. “So central banks elsewhere are still aggressively stimulating their economies and keeping their rates low, and that’s acting as a bit of an anchor on longer-term rates.”

With this foreign demand for safe assets, the MBA expects U.S. mortgage rates “are going to be held back by the lower rates abroad over the next couple of years.”

Even with these predictions of a continuation of low rates, economists expect the Fed will raise rates by another quarter-point before the end of the year. That will make for a full percentage point increase within one year.

“This move by the Fed to increase short-term rates was expected, and we expect to see another increase from them before the end of the year,” says Sean Becketti, chief economist for Freddie Mac.

However, Freddie Mac expects mortgage rates to “start rising slowly as the year progresses, yet still remaining right around 4 percent,” Becketti adds.

Frank Nothaft, chief economist at CoreLogic, says, “Fixed-rate mortgage rates are likely to gradually edge higher over the next six to 12 months. Rates are likely to rise to 4.25 percent to 4.5 percent by the end of 2017.”
Fratantoni also expects 30-year rates to be near 4.5 percent by the end of the year – and above 5 percent by the end of 2018.

If you, or someone you know, is thinking about entering the housing market, keep a watchful eye on mortgage interest rates. Surround yourself with a team consisting of a trusted mortgage broker and Realtor.