Rising home prices over the last few years are finally putting more money back into home sellers’ pockets, a trend that should continue through 2016. Homeowners who sold during the latter part of 2015 saw an average price gain of $40,658 — or 17 percent — from the purchase price of their property — the highest average price increase for sellers since the third quarter of 2007, according to RealtyTrac’s 2015 U.S. Home Sales Report.

“An increasing number of home owners have been cashing out the home equity they’ve gained during the housing recovery of the past three years,” says Daren Blomquist, vice president at RealtyTrac. “That may be a good decision because the data points to a plateauing market going forward. Home price appreciation is slowing, a trend that will continue if interest rates rise in the coming months as expected. Meanwhile the threat of rising interest rates combined with lowered premiums for buyers using FHA loans is spurring more demand.”

Meanwhile, Freddie recently issued a mortgage rate forecast for 2016. By their estimation, the average rate for a 30-year fixed home loan could rise steadily between now and the end of 2016, perhaps climbing to 5.2 percent by end of 2016.

This latest rate prediction was part of a broader report issued by Freddie Mac.

The economists at Freddie Mac expect mortgage rates to trend upward into 2016. They are also predicting some volatility in long-term interest rates if the Federal Reserve continues to push its stimulus policy.

How will the housing market change if mortgage rates do in fact rise steadily through 2016?

“Rising rates and continued house price appreciation will squeeze affordability even in today’s low cost markets. Housing looks strong enough to weather moderately rising rates, but we need real income growth to support home buyer demand.”

The problem is compounded in high-cost real estate markets. In pricier markets, rising home values and interest rates put homeownership that much further out of reach, according to the Mortgage Bankers Association.

“For 2016, we expect $791 billion in purchase originations. However, rates will likely continue to rise and cause refinances to decline to $379 billion for a total of $1.17 trillion in origination volume in 2016.”

That’s roughly a 70/30 split between purchase loans and refinance loans, respectively. As a result of this market mix, lenders will likely put most of their efforts (and marketing budgets) into attracting homebuyers, as opposed to homeowners.

More Lender News