Want to buy a home in 2018? Four economists predict mortgage rates

Like so many things these days, mortgage rates can be hard to predict.

After sitting at record lows for years, the rates have begun to inch up in 2018. The Mortgage Bankers Association said Wednesday that during the week ending Jan. 12, the average contract interest rate for the standard 30-year fixed-rate mortgage jumped to 4.33 percent nationally, up from 4.23 percent the week before. The jump, the association said, was the highest rate since March 2017.

That uptick, the association found, pushed more buyers toward applying for mortgages — an unusual reaction. According to the Mortgage Bankers Association, mortgage loan application volume rose 4.1 percent compared with the week before. The number of refinance applications also increased 4 percent.

Some of that, observers say, may be driven by fear. With predictions that rates could continue to rise, some buyers could be trying to lock in lower rates now. On the other hand, observers said, the jump in activity could simply be pent-up demand from the holidays — or buyers trying to get in early before the busy spring market.

Either way, it's made many ponder what to expect this year. The Inquirer and Daily News asked four mortgage experts for predictions. Their answers have been edited for length and clarity.

"The Mortgage Bankers Association projects that 30-year mortgage rates, which averaged about 4 percent in 2017, will increase to average about 4.5 percent in 2018. In a context of economic growth, a strengthening job market, and rising inflation, we're forecasting that the Federal Reserve will increase short-term rates four times this year and will continue to steadily shrink their portfolio of Treasuries and [mortgage-backed securities].

"All of these factors will put upward pressure on mortgage rates. Accordingly, refinance application volume will decline about 30 percent relative to 2017. Purchase application volume, however, is likely to grow, as a stronger job market will lead more people to buy houses, and we are forecasting that home prices will continue to increase at a pace faster than overall inflation. We're looking for about 5 percent home price growth nationally in 2018.

"Certain higher cost, higher tax markets, e.g., New York, New Jersey, and coastal California, are likely to be somewhat negatively impacted by the tax changes that limit the mortgage interest deduction and the deductibility of state and local taxes.  … On net, we're still expecting solid home price growth at the national level and in most markets across the country due to the tight inventory of unsold homes."

"2018 should be another strong year for the housing market but with some caveats. The passage of the tax bill is a short-term positive that will put an additional $2,000 in the pockets of the average American, while also boosting economic growth, lowering the unemployment rate even more, and bumping up wages.

"However, further declines in the unemployment rate will create inflationary pressure, and the Federal Reserve's continued plan to unwind its balance sheet will force up long-term bond yields, and consequently, mortgage rates. Fortunately, mortgage rates are not expected to top 5 percent in 2018, but the combination of steady home-buying demand and higher mortgage rates amidst low supply will continue to put pressure on affordability – especially for first-time buyers – in most parts of the country."

"Rates will be higher in 2018 than last year. We expect the 30-year mortgage rate to inch up to between 4.3 percent and 4.5 percent in 2018, compared to an average of 3.99 percent in 2017.

"The Federal Reserve is expected to hike short-term interest rates three times this year. Short-term rate hikes, when well anticipated by Wall Street investors, don't have a significant effect on longer rates like mortgages. However, we also expect slightly stronger economic growth in 2018 that should put upward pressure on long-term rates.

"The combination of higher home prices (more than 6 percent) and higher interest rates means mortgage payments will be higher in 2018 for the same home. There is still very little inventory and very strong price growth. These two factors are driving the 2018 market, not rates.

"Generally, when rates increase, buyers purchase smaller homes. For this reason, we might see even stronger demand for starter homes, where supply is extremely limited in most markets. … In contrast to the starter home market, we could see some softness in the high-end home segment."

"The Fed is expected to increase short-term interest rates three to four times this year and longer lending rates — including mortgage rates — should increase as well.

"We expect the standard 30-year fixed mortgage rate to end 2018 around 4.5 percent. Mortgage rates have been near historic lows for years, allowing buyers to extend their budgets on what price home they can afford — after they come up with a down payment. The biggest challenge for buyers is coming up with that initial down payment. Once they have that, monthly mortgage payments are less of a financial burden than the rent in most major markets and would still be less expensive even if rates hit 5 percent."