The last week of 2013 brought relatively good news in view of the economic roller coaster rides caused by legislative impasse. A brief shutdown of federal government agencies, and nail-biting suspense over if and when the FOMC of the Federal Reserve would taper its quantitative easing program.
Earlier this week, Federal Reserve officials announced they would increase the short-term federal funds rate by another quarter point. This is the latest episode in an ongoing policy shift that could bring higher mortgage rates for Washington State home buyers in 2018.
Here’s a look at how the recent Fed rate hike might affect mortgage borrowing costs in 2018.
Will Fed Actions Bring Higher Mortgage Rates?
The Federal Reserve’s latest rate increase will likely affect consumers across the country. It could affect the terms for everything from credit cards to mortgage loans.
The Fed’s recent decision to increase the federal funds rate by 25 basis points (0.25%) was the fifth increase since December 2015. Granted, the Fed does not control mortgage rates directly. But their policies do affect investor demand and other factors that can lead to increases or decreases among mortgage rates nationwide.
Currently, the average rate for a 30-year fixed mortgage loan in Washington and nationwide is hovering just below 4%. That’s according to the weekly survey by Freddie Mac. The average has been in that range for several weeks now.
But many housing analysts and economists expect that mortgage rates could rise throughout 2018, partly due to these actions taken by the Fed. And this could affect home buyers in Washington State, over the coming months.
There are several factors that can influence mortgage rates. The general health of the economy, federal monetary policy, and inflation all have some degree of influence over long-term fixed mortgage rates. And we have already seen a slight increase over the last few weeks.
According to a recent forecast, the economists at Freddie Mac expect 30-year mortgage rates to average around 4.4% in 2018, compared to an average of 4.0% in 2017. This is just one of several forecasts that suggest home buyers in Washington could see higher borrowing costs in 2018 (on average).
If rates do rise gradually in 2018, as expected, we could see a corresponding decline in mortgage refinancing activity. Typically when rates rise, refinance volume tends to slow down due to a lower potential for savings.
Washington Home Buyers: Keep an Eye on Home Prices
For home buyers, rising mortgage rates are only one concern. Home prices across Washington State are expected to continue rising as well, with a recent forecast from Zillow projecting 5% growth over the next 12 months.
Home buyers are planning to enter the real estate market in 2018 might want to consider making a purchase sooner rather than later. Postponing your purchase until later in the year could end up costing you.
According to Lynn Fisher, vice president of research and finance for the Mortgage Bankers Association, the prospect of rising rates could create a sense of urgency for buyers.
“I think for most people, buying a house isn’t contingent on interest rates,” she said, “but (the prospect of higher rates) may help speed things up.”
This motivational effect could be amplified in pricier real estate markets like Seattle, where home buyers are already feeling the pinch of high housing costs.
Disclaimer: This article includes mortgage rate forecasts for Washington State and the rest of the nation. These projections were issued by third parties not associated with our company. We have compiled this information as an educational service to our readers.