As 2016 draws to a close, it’s a good time to reflect and look ahead to what 2017 may bring. The Trump Administration’s plans to cut taxes and prioritize spending on infrastructure have already started to impact the housing market and mortgage marketplace. Many of the trends we’re already seeing at the end of this year are expected to continue to affect home financing in 2017. Let’s take a look:
Mortgage Rates – Up, Up, and Still Low by Historical Standards
Amid post-election uncertainty investors pulled their money out of U.S. Treasury bonds (a benchmark for mortgage rates), causing rates to increase. Rates on 30-year fixed mortgages rose about .5% between the election and the December Fed meeting. This means monthly payments are about $85 more per month on a $300,000 loan and about $172 more per month on a $600,000 loan.
Most investors feel that the Trump administration’s policies will promote growth and encourage inflation. Threats of inflation often drive investors to sell bonds, bond prices drop in a sell-off, and rates increase as a result. Although rates could continue higher to start 2017, rates are unlikely rise as quickly as they did post-election, and the long-term rate chart above shows that rates are still extremely low by historical standards. Many homeowners may still benefit from a refinance.
Fed Rate Hike: What’s the Impact?
The federal funds rate also has an impact on longer-term home loan rates. On December 14, 2016, the Federal Reserve announced a rate increase of .25%, following their first meeting since the election.
Homeowners with a Home Equity Line of Credit (HELOC) will see their rate rise by .25% on their next payment as a result of this Fed decision, which impacts the Prime Rate. HELOCs are tied to a margin plus the Prime Rate, which is now at 3.75%. So, if a borrower’s HELOC margin is 2%, that means the HELOC rate will be 5.75% on their next payment.
If Trump delivers on his promise to accelerate economic growth and lower unemployment, analysts expect the Fed could step up the pace of rate hikes to counter expected increases in inflation. Fed officials are widely expected to raise rates two or three times in the coming year, depending on the health of the economy. Switching from a HELOC to a fixed-rate second mortgage now may be an option for some borrowers to protect themselves from later increases.
New Loan Limits
On a positive note for home buyers, the new year will kick off with an increase to maximum loan limits for Fannie Mae and Freddie Mac mortgages, also known as conforming loans. The limits are going up for the first time since 2006. An increase in conforming loan limits will also have a potential impact on FHA borrowers since FHA sets its minimum national loan limit at 65 percent of the conforming loan limit. This change has the potential to increase credit capacity and home buying power for those who have been unable to enter the real estate market in the recent past. According to NAR President, William Brown, “Today’s conforming loan limit increase is a much-needed recognition of rising home prices in high-cost markets, and a help to first time and lower-income borrowers looking to utilize an FHA mortgage.” Click here to see updated loan limits by county.
It’s Time For A Mortgage Review
The economy is improving, which will continue to help the housing market improve. For more insight into the market and the possible impacts to your home financing opportunities, contact a loan advisor to discuss your options.