Mortgage rates, home sales and prices seen rising in 2017

Economists predict mortgage rates will continue to climb this year – just one of the trends that suggest 2017 could be a more challenging year for homebuyers.

While mortgage rates remain low by historical standards, they’ve risen sharply over the past couple of months, pushing the average rate on a 30-year, fixed-rate mortgage to 4.32 percent this week. That’s the highest level since April 2014 and well above the year’s average of 3.65 percent.

“With higher mortgage rates, you’re increasing the cost, challenging the budgets, challenging the ability to qualify and, as a result, likely reducing somewhat the pool of potential buyers,” said Jonathan Smoke, chief economist for Realtor.com.

Long-term mortgage rates tend to track the yield on the 10-year U.S. Treasury note. The yield goes down when investors bid up bond prices, as they did following this summer’s vote in Britain to exit the European Union. The move sent long-term mortgage rates tumbling as low as 3.41 percent.

The reverse happened after Election Day. Investors bet that a Republican-controlled White House and Congress will have a clear path to implement policies that will drive inflation and interest rates higher. A sell-off in U.S. bonds drove the yield on the 10-year Treasury note to the highest level in more than two years. Mortgage rates have been inching higher ever since.

But will they continue to do so?

Smoke predicts mortgage rates will reach 4.5 percent in 2017. Other economists expect rates will remain above 4 percent but not go beyond 5 percent next year.

That range would mean mortgage rates that would be low compared to the last decade.

Average long-term mortgage rates were above 6 percent during the height of the last housing boom and they hadn’t hit 5 percent before 2008.

So someone looking to buy a home in the next few months doesn’t need to panic, said Svenja Gudell, chief economist at Zillow, a real estate information company.

“My advice to buyers would be to not freak out and feel a sense of urgency,” she said. “If you aren’t able to buy a house at 4.5 percent, you probably weren’t able to buy a house at 4 percent.”

Higher mortgage rates could have one silver lining: As some buyers are priced out, sellers may have to be more flexible on prices. Over time, that could help stem home prices.

Low inventory and strong demand helped push prices higher in 2016 at the fastest pace in 10 years, according to an analysis by Zillow. The company predicts that U.S. home prices increase about 3 percent in 2017, down from a gain of about 6.5 percent this year.