Mortgage rates, which have averaged less than 4 percent on 30-year loans for three of the last four years, could be at 4.5 percent by the end of this year and then hit 5 percent in 2017, the chief economist for the National Association of Realtors said in Milwaukee Monday.
“We are in a rising interest rate environment,” Lawrence Yun told more than 150 real estate professionals and others attending the fourth annual Wisconsin Real Estate & Economic Summit at The Wisconsin Club.
Yun said that while there are several variables weighing on the direction of mortgage rates, the Federal Reserve seems determined to see rates rise off their historic lows.
Although increases in short-term rates controlled by the Fed do not directly affect 30-year fixed rate mortgages, “the Fed nudging the short-term rates higher could begin to nudge the long-term rates higher,” Yun said.
Worries about China’s economy have helped keep mortgage rates from increasing this year, but concerns about the growing overall U.S. debt and the possibility of consumer inflation if gas prices stabilize or go up are factors that could help undo what generally has been a no-inflation climate in the U.S., he said.
“I believe as the Fed begins to hike rates — two more times this year, four more times next year — rates will go up,” Yun told attendees of the event, which was sponsored by the Greater Milwaukee Association of Realtors and Marquette University.
Only once in the last four years has the average annual interest rate on a 30-year fixed rate mortgage in the U.S. been above 4 percent, according to mortgage buyer Freddie Mac. That was in 2014, when the rate average rate for the year was 4.17 percent, with points of 0.6. Points are fees paid by some borrowers to get a lower rate. A point equals 1 percent of the loan amount.
The average rate on a 30-year fixed rate mortgage was 3.85 percent with 0.6 points in 2015; 3.98 percent with 0.7 points in 2013; and 3.66 percent with 0.7 points in 2012.
In 2006, the year before the recession started, the annual average for 30-year fixed rate mortgage was 6.41 percent, with 0.5 points.
Yun said he expects the U.S. economy to “again be subpar” this year.
“Jobs will still come around, less than last year because of smaller growth,” Yun said. “But watch out for consumer prices inching up in the second half, which will lead to mortgage rates beginning to rise.”
Yun said he expects sales of existing homes nationally to be “roughly flat,” but with prices going up.
Marquette economics professor David Clark, who regularly analyzes sales and price data for the Wisconsin Realtors Association, said he also thinks mortgage rates will rise. Clark said he expects the Wisconsin housing market for existing homes, which grew by 11.4 percent in 2015 — its best year in a decade — to expand at a more moderate pace in 2016. The state housing market is limited by tight inventories of homes for sale in areas that are more urban, he said.
“Keep in mind it [2015] was still an awfully good year,” Clark told the the real estate agents. “I think you’re going to continue to be quite busy in 2016.”
Last year, the median price of existing homes sold in Wisconsin was up 5.1 percent from 2014, at $155,500.
“I think median prices are likely to rise, probably on par with what it was last year — maybe a little bit lower,” Clark said. “So I think we’re set up for a relatively solid year.”
David Belman, president of Belman Homes and the 2016 president of the Metropolitan Builders Association, said he thinks new-home construction will be “flat” this year.
In 2015, permits to construct new homes declined about 1 percent from 2014 in Milwaukee, Ozaukee, Washington and Waukesha counties, to 1,225 from 1,237, data from MTD Marketing Services of Wisconsin Inc. shows.
