Mortgage market soars in 2016 and is yet to plummet again in 2017: Reports from Freddie Mac

Freddie Mac still believes that mortgage lending is on the right track for 2016 and there are expectations for the market to tap the brakes yet again in 2017. Freddie Mac’s monthly report which was out last month, showed that the enterprises and agencies sponsored by the US government, were continuing to project that the mortgage loan originations would top $2 trillion in 2016. The latest report repeats the same belief but currently the GSE is anticipating mortgage originations to fall back in 2017, from $2 trillion this year to $1.65 trillion in the next year.

As per the report from Freddie Mac, the drop in 2017 will be mainly driven by a considerable decline in the number of refinances. The GSE expects to see $1 trillion in originations of mortgage refinance in 2016 but predicts that 2017 volume of refinance will fall by about 42% to something under $600 billion.

What is the possible reason behind this decline?

Yes, you must be wondering about the reason behind this sharp decline in mortgage loan origination costs. Freddie Mac expects interest rates to rise slightly through 2017, though the rise won’t be too much. Freddie Mac also notes that activities with regards to refinance are rate-sensitive and upward movement in rates will calm down mortgage refinance activity.

Even though the worldwide bond yields get back to the pre-Brexit status quo, mortgage rates are most likely to remain at low levels for a long period of time. Borrowers may expect a slow rise in rates through the remaining 2016 and entire 2017 with a 30 year fixed rate averaging at 3.9% during the 4th quarter of 2017.

Will 2017 see a replay of what we saw in 2016?

While there are some experts and analysts who believe that the mortgage rates will increase, not everyone believes that the rates will increase. There are some who are of the opinion that the mortgage rates will remain below 3.5% in early 2017. As per Kiplinger, the Fed may increase rates on short term mortgage loans during its meeting in December but they also add that even with the hike in rates, interest rates will most likely remain low and also fluctuate within a very narrow range.

If there’s inflation which shows a strong upward trend, or when the Fed commits on raising the federal funds rate to a normal 3%, the rates may show an upward trend. Both the Fed and many other economists have been predicting about half a percent increase in long-term rates every year getting back to the Great Recession and every year rates have stayed in the same range moving lower due to sluggish economy and continuous uncertainty about investment.

Should you take action now or wait for the right time?

Considering the fact that most professionals think that mortgage rates may either slightly increase or remain the same in 2017, candidates who are serious about buying a home or those who are eager to refinance need to ask themselves whether they should lock in at the present rate or wait for a better opportunity in 2017.

Well, experts recommend that this is the right time to take action, irrespective of whether you’re looking forward to buy a home or refinance your mortgage. In fact, you should act immediately if you’re eager to buy a new home since home prices continue to rise in majority of the areas. A slight increase of 5% along with the interest rate can cost a homebuyer thousands of dollars. Hence, locking a rate sooner is better than waiting for 2017.

Mortgage rates keep fluctuating with time and if you’re a homeowner who wishes to refinance your loan or take out a new loan, you should act immediately. Take a look at the bigger picture before making any hasty decision.

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