2016 Mortgage Rates Forecast: They Could Climb to 5%

2016 Mortgage Rate Predictions

Well, another year is behind us and it’s time to look into the crystal ball to see what 2016 has in store when it comes to mortgage rates.

I already posted my 2016 predictions for everything mortgage and real estate related, but I wanted to dig a little deeper into mortgage rates, which always seem to be a crowd favorite for existing and prospective homeowners.

While we can never say with certainty which way mortgage rates will move on a given day, week month, or year, we can definitely make some educated guesses.

Additionally, we can use the experts’ forecasts as a guide, though as I’ve mentioned before, they aren’t going to be accurate 100% of time, or even close to that. In fact, they could be completely wrong.

Still, it’s good to get a variety of estimates from the pundits so we at least narrow things down.

Below I’ll be listing all the estimates for the 30-year fixed-rate mortgage, which is by far the most popular mortgage type in existence today.

Note that these estimates can change from time to time, but are the latest available.

Fannie Mae’s 2016 Mortgage Rate Forecast

Let’s start with Fannie Mae, a leading securitizer of residential mortgages on the secondary market. Clearly they know a thing or two about mortgage rates.

They expect relatively flat mortgage rates in 2016, which is undoubtedly a good thing.

First quarter 2016: 4.0%
Second quarter 2016: 4.0%
Third quarter 2016: 4.1%
Fourth quarter 2016: 4.1%

Per Freddie Mac, the 30-year fixed currently stands at 3.97%, so Fannie’s forecast calls for very little or no rate movement in 2016. Nice!

Freddie Mac’s 2016 Mortgage Rate Forecast

Now let’s take a look at brother Freddie’s forecast, which differs quite a bit from Fannie’s. They actually expect a decent amount of rate movement in 2016, though rates should remain below 5% all year long.

First quarter 2016: 4.1%
Second quarter 2016: 4.3%
Third quarter 2016: 4.5%
Fourth quarter 2016: 4.7%

Freddie Mac sees the 30-year climbing about 75 basis points (0.75%) from current levels, which is significant but no reason to panic.

MBA’s 2016 Mortgage Rate Forecast

Now let’s turn to the Mortgage Bankers Association to get their point of view. They’re clearly a major player in the mortgage industry so you’d expect them to come up with some pretty accurate estimates.

Unfortunately, their estimates are a bit higher, so hopefully they’re wrong…

First quarter 2016: 4.2%
Second quarter 2016: 4.4%
Third quarter 2016: 4.6%
Fourth quarter 2016: 4.8%

As you can see, not quite 5%, but pretty darn close. They expect applicants to receive 30-year mortgage rates closer to 4.875% by year-end as opposed to 4% today. That’s enough to turn the rent vs. buy decision on its head.

National Association of Realtors 2016 Mortgage Rate Forecast

Finally, let’s take a look at what the Realtors think. I like to take their estimates with a larger grain of salt because the NAR always seem to think rates will surge higher. Call it motivation to BUY NOW!

Their estimates are pretty similar to the MBA’s, and you could argue that the MBA also wants you to get a mortgage ASAP.

First quarter 2016: 4.1%
Second quarter 2016: 4.3%
Third quarter 2016: 4.6%
Fourth quarter 2016: 4.9%

So the NAR stopped short of calling 5% mortgage rates in 2016, but they’re not leaving much room to breach that psychological level. And as mentioned, these estimates can and will change throughout the year.

In other words, don’t be surprised if they are revised up as the year goes on. That being said, they can be revised down as well.

I’d say mortgage rates have already surprised (in a good way) to start 2016, though investors have taken big losses in the stock market in the process.

In summary, the 30-year fixed isn’t expected to do too much if you believe Fannie Mae, but all the other forecasters expect rates closer to 5% by the end of 2016. Stay tuned to see who’s right.

Update: Mortgage rates have fallen for five straight weeks in 2016 and are now close to testing new-all time lows. Looks like Fannie is the best predictor so far.

(photo: Charles Wagner)