On a whole, mortgage interest rates moved lower throughout 2017 after rising above 4% in January.
But what’s going to happen in the next few years?
According to the top economists at the Mortgage Bankers Association, mortgage rates will rise in the next few years, past 4% and even past 5%.
During a session at MBA Annual in Denver, the MBA’s Michael Fratantoni, chief economist and senior vice president of research and technology; Marina Walsh, vice president of industry analysis; and Lynn Fisher, vice president of research and economics; discussed the MBA’s view of how the economy and the housing market will change over the next few years.
Speaking first, Fratantoni said that the MBA expects purchase mortgage volume to continue to grow through 2020, while refinances are expected to continue dropping as interest rates rise.
As for interest rates, Fratantoni said that the MBA believes that mortgage rates will rise to 4.6% next year, then above 5% in 2019 and 2020.
Later in the session, Fisher discussed the MBA’s view of the future of the housing market.
Fisher said that the MBA’s forecast shows that house prices can’t continue to rise at this rate forever. Fisher said that the MBA expects a stabilization in house prices, not a decrease, but a calming of the recent increases in the coming years.
Another facet of the housing ecosystem that is affected by rising housing prices is affordability.
As Mohamed El-Erian, the chief economic advisor for Allianz and the former chief executive and co-chief investment officer at PIMCO, said on Monday at MBA Annual, another factor on housing affordability is wage growth, or the lack thereof.
“Income is not keeping up with rising home prices and the gap is growing,” El-Erian said. “The industry needs desperately income growth. We’ve gone as far as we can go on artificially low interest rates. Income growth is so important to so many parts of the economy.”
But according to Fratantoni, wage growth is coming.
“It is getting much more difficult for companies to fill their open positions,” Fratantoni said, but said a growing number of companies plan to begin raising wages to attract qualified candidates moving forward.
So, while interest rates may increase in 2018 and beyond, perhaps borrowers will be able to handle those higher rates thanks to higher wages.