5 Reasons US Mortgage Rates Will Remain Low

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Bryan Dornan

Refi Guide Founder

After Donald Trump was elected as the next president of the United States, mortgage interest rates bumped a bit higher. Also, in December 2016, the Federal Reserve increased interest rates by ¼ of a point. According to the weekly Freddie Mac report, this led to interest rates going higher so that 30 year mortgages were in the range of 4.125%.

But now that it is 2018, what will mortgage rates do? We think overall that they will continue to stay quite low historically, even though they may edge higher in the short term. Many experts in the housing industry, however, think that mortgage interest rates will continue in the same range for the next year.

Here are some of the factors that will influence 2018 mortgage rates:

#1 Rents Are Going Up

Rents in many major markets are going up fast, which is partially due to people not being able to qualify for a home loan. As more people are renting a home, this causes rents to rise.

This effect could cause a downward pressure on mortgage rates for first time home buyers.

#2 Home Prices Are Rising

Generally, house values are going up, and this could cause more people to want to jump into the home ownership market before the prices go up too much more.

Home prices continuing to go up could be a sign of strong economic activity, which may cause interest rates to go up somewhat. But you should always remember that historically, interest rates for mortgage will likely stay very low.

Also, note that right now many areas are seeing more demand for housing than the supply provides. Thus, waiting to buy a home could end up costing you more, even if the rates are the same in a few months.

#3 More Mortgage Loan Products Are Available

After the mortgage crash, there were fewer loan products available and that led to higher mortgage rates and higher standards. Now, the mortgage market is starting to relax more, and more loan products are available than a few years ago.

According to the new HUD Secretary Ben Carson, “I believe the 30-year home mortgage has enabled millions of Americans to achieve the American dream. I think there are probably a number of ways to preserve that dream.”

With more loan products available, we could see mortgage rates staying about the same as now.

2017 mortgage rates

#4 Less Regulation Could Decrease Rates

One of the top priorities of the incoming Trump administration is to dismantle parts of the Dodd Frank law. This could make it easier for people to get loans and could lead to a decrease in rates.

What is the problem with the Dodd Frank Act? Critics deride it as a job and business killer. They say that oppressive financial regulations are hurting the economy and that overhauling the law will lead to pro-jobs and pro-growth policy that will increase economic growth while keeping rates under control.

#5 Inflation Is Still Low

According to Kiplinger, the increases in rates by the Federal Reserve will lead to modest increases in rates for mortgages. However, you should keep in mind that generally, as long as inflation stays under 3%, this should prevent mortgage rates from going up too much.

Many experts predict that with inflation where it is right now, we can expect rates to be in the 3.75% to 4.25% range through 2017. Those experts also note that there have been predictions about serious mortgage interest rates going back to 2009, and the rates really have not changed that much.

Should You Act Now?

Overall, there is a good chance that rates will stay in a similar range as right now for the next year. If you are thinking about buying a home, should you go ahead and do it now? If rates are not really going to change much, isn’t there time to decide?

Yes, there is. However, you should note that rising housing prices are affecting a large party of the country and this will likely continue under a Trump administration. He is known to be more pro-business and pro-real estate. Thus, we think that there could continue to be a 4-5% rise in home prices each year.

Even if home mortgage rates stay the same as right now, in a year, you could easily pay 5% or more for your home than you would right now.

So, we lean towards going ahead and buying a home in the near future, even if interest rates are going to be about the same in years’ time.

The Reality

We think that rates will keep in the same similar range in the next year, and are unlikely to edge above 4.5%. If that is the case and prices continue to rise, buying a house as soon as possible makes a lot of sense. When prices are going up 5% a year, you will be able to afford to buy less house in a year. So even if mortgage interest rates are staying in the same range, we think now is a good time to buy.

About Bryan Dornan

With over 20 years in the mortgage industry, Bryan Dornan has started several companies, such as the Lead Planet, Mortgage Lenders Plus and the Refi Guide. Mr. Dornan has written hundreds of finance related articles in an effort to promote home-ownership to consumers across the United States.