Analysts are now starting to take a look at the big questions that will matter in the home market in the coming year. The biggest question being, where will mortgage rates end up in 2018?

Mortgage Rates

One of the more immediate questions homeowners and prospective buyers may ask is what mortgage rates are going to be like in 2018. While the answer to that question tends to be anyone’s guess, it doesn’t stop analysts from making educated predictions.

Before we get to these, let’s take a quick look at the environment in which they make these estimates.

Federal Funds Rate

The Federal Reserve sets something called the federal funds rate. This is the rate at which U.S. financial institutions borrow money from each other. This is set and negotiated by the banks a little bit, but the U.S. central bank defines a range within which the rate has to fall.

The Federal Reserve has raised rates five times since 2015, after leaving rates near zero for a long time after the 2008 recession in order to stimulate the economy.

Currently, the federal funds rate falls between 1.25% –1.50% after rising three times in 2017. The idea is that raising interest rates is a check on inflation.  Although not directly correlated, mortgage rates tend to follow the federal funds rate. If this rate is higher, mortgage rates tend to rise with it.

The Federal Reserve releases something called the dot plot at the conclusion of its Federal Open Market Committee meetings. This is a representation of where the committee members expect short-term rates to be in the near future.

The median prediction among the members is that the federal funds rate will rise three times this year to end 2018 at 2.1%.

Mortgage Rate Predictions

Now that we know the backdrop to each of these predictions, where do analysts think mortgage rates will end up in the next year?

Conventional mortgage investor Freddie Mac thinks that 30-year fixed rates will increase to 4.4% by September 2018.

Meanwhile, the Mortgage Bankers Association (MBA) thinks rates for 30-year fixed mortgages will settle at 4.6% by the end of 2018, while rising above 5% in the next few years.

The National Association of REALTORS® believes rates will average 4.6% throughout the year before rising to 5% for the 30-year fixed by the end of the year.

What’s really going to happen? The answer will have to come in time, but for now, this is what the experts are predicting.