Freddie Mac Releases Mortgage Rate Forecast for 2016

Filed under: Mortgage News

Happy Senior Couple in the Front Yard of Their House.

Government-owned Freddie Mac recently issued its mortgage rate forecast for 2016. This forecast comes from Freddie Mac’s broader report titled, “May 2015 U.S. Economic and Housing Market Outlook.”

The report explains that according to Freddie Mac’s estimation, the average rate for a 30-year fixed home loan could rise steadily between now and the end of 2016.

Freddie Mac economists expect mortgage rates to “trend” upward through the second half of this year and into 2016, and the report also suggests some volatility in long-term interest rates when the Federal Reserve changes its stimulus policy, which may happen this fall.

The Federal Reserve has kept the federal funds rate near 0% in the past few years. It has done this to increase access to credit and accelerate the housing market toward recovery.

However, since the housing market and the economy are being resuscitated, the Federal Reserve officials are possibly planning on raising the funds rate. If this occurs, it would likely lead to an increase in mortgage rates, especially the long-term rates used for 30-year fixed home loans.

According to expert analysts, they expect the Federal Reserve to increase rates in the fall of 2015, which would coincide with its committee meeting in September of 2015. If this does happen, higher mortgage borrowing costs could be seen toward the end of this year and into 2016.

In addition, the report mentions that purchase loans could dominate the market in 2016. When mortgage rates rise, home refinancing activity usually subsides to an extent. This is due to the higher borrowing costs reducing the potential for savings over the long-term, which means fewer and fewer homeowners are able to refinance successfully.

The Mortgage Bankers Association, in a recent forecast, said, “For 2016, we expect $791 billion in purchase originations. However, rates will likely continue to rise and cause refinances to decline to $379 billion for a total of $1.17 trillion in origination volume in 2016.”

As a result of this, lenders will probably put most of their efforts and marketing budgets into attracting home buyers as opposed to homeowners.

If you have any questions about anything concerning the mortgage industry, please feel free to call Bill Provost. He will be glad to discuss whatever is on your mind. 760-282-4415