A look ahead to 2018, will rates and home prices move higher?

Happy New Year!  Welcome to 2018.  Want to feel old?  Students in the class of 2018 that graduate from high school this year were born in 2000-2001.  They’ve never known Star Wars to be a trilogy or “rolled down a window”.

Assuming home ownership rates remain similar then approximately 63% of them will purchase a home in the future.  What interest rates will they lock on their loans?  If you believe in “reversion to the mean” then this chart above may offer a clue.

I believe mortgage rates are likely to increase in 2018.  Why do I think this?

Yield Curve

The yield curve flattened during 2017 as the Fed hiked short-term interest rates while yields at the long end of the curve remain more or less unchanged.

This is evident in the fact that the difference between the yield on a US 10-year treasury note and 2-year note fell last year.  A flat yield curve typically predicts an economic recession, which does not seem likely in the near-term, or higher long-term rates in the future.  I think the latter is more likely.

I do not have a crystal ball but am forecasting 30-year fixed rate mortgage rates to increase by .50%-.75% during 2018.

Home Prices

Home price appreciation for Portland has been on a steady decline since the summer of 2016 but remains above historical averages.  In Portland home prices are increasing at a ~7% annualized rate according to the Case-Shiller Home Price Index report.

Given that demand is expected to remain strong as people continue to move here and supply of housing remains constrained I think it will be more of the same in 2018.  I am forecasting home prices in Portland to increase by 6.0% over the next 12 months.

How do you see 2018 playing out?  Feel free to leave comments here.

Current Outlook: locking

The views and opinions expressed in this site are those of the author(s) and do not necessarily reflect the official policy or position of Cherry Creek Mortgage Co., Inc. This is for informational purposes only. This is not a commitment to lend.