Earlier this month, the Federal Reserve raised the federal funds target rate by 25 basis points—just like last December.
Unlike last December, when mortgage interest rates subsequently plummeted down to near record lows seen in 2012, this time rates have gone the other direction. A forecast for three more rate hikes by the Fed in 2017 are likely to keep rates on an upward trend that began in late October.
Regardless of which mortgage rates survey is used, rates are at their highest level in two-plus years. Freddie Mac reported in its Primary Mortgage Market Survey that the average 30-year FRM to be at 4.30 for the week ending December 22, a 14-basis point increase from the previous week and the highest rate since April 2014. The average 15-year FRM jumped by 15 basis points over-the-week up to 3.52 percent.
On December 14, the day the rate hike was announced, Fed Chair Janet Yellen stated in her press conference that the median projection for the federal funds rate is for the rate to rise to 1.4 percent by the end of 2017, 2.1 percent by the end of 2018, and 2.9 percent by the end of 2019. Right now, the rate is at 0.5 to 0.75 percent.
“A week after the only rate hike of 2016, the mortgage industry digested the Fed's decision and this week's survey reflects that response.,” Freddie Mac Chief Economist Sean Becketti said. “Following Yellen's speech last Wednesday, the 10-year Treasury yield rose approximately 10 basis points.”
Bankrate.com reported an average 30-year FRM of 4.31 percent (an increase of 13 basis points), highest level since September 2014, and the eight consecutive week with an increase. The average 15-year FRM was up 14 basis points from last week, to 3.56 percent.
“This week saw another big jump after expectations for three Fed interest rates hikes in 2017—rather than two—were revealed at last week's FOMC meeting,” Bankrate.com stated. “Mortgage rates continue to be driven higher by the consensus forecast of tax cuts and fiscal stimulus that spur faster economic growth and higher inflation in 2017. With investors acting on what appears to be a truly best case scenario, the odds of market volatility and recalibration are growing should the reality not match up to those lofty expectations.”
Bankrate.com estimates that the monthly payment on a $200,000 loan with a 30-year FRM rate of 4.31 would be $992.