Mortgage rates have risen strongly during the past few months but what about 2017? Are we destined to see higher borrowing costs in the coming year, or is it possible that mortgage rates might level off or even decline?

No doubt about it—the Fed’s December 14th rate hike has been long-anticipated and widely welcomed by investors seeking better returns. Not only that, there are predictions that the Fed is likely to raise rates three more times in 2017.

The December Fed rate hike is a small and measly uptick, not much of anything. We’re talking about a .25 percent increase in the federal funds rate over a 12-month period (the rate that banks pay for overnight borrowing). The prime rate will now increase, banks will receive an extra $5 billion in additional interest from the $2 trillion or so in excess reserves parked with the Fed, and perhaps the rates paid for CDs and savings will increase a touch.

“You can describe the Fed rate hike as either the second increase in a year or the second increase since 2006,” said Rick Sharga, executive vice president at Ten-X. ”Small though it is, the 2016 Fed hike is a plain signal that the record low interest levels seen during the past decade have come to an end and that something different lies ahead. The question is: What is that something and how will it impact the real estate industry?”

Not All Rates Are Equal

Unlike the federal funds rate set by the Fed, interest levels for mortgages are not set at all. Instead they move up and down, powered by the most primitive economic equation: supply and demand. A look at recent rate trends suggests that after an initial flurry of higher mortgage quotes, the Fed’s December rate hike will have only a limited impact on real estate financing costs.

Here’s why. Rates for prime 30-year mortgages were at 3.41 percent on July 7th and reached 4.16 on December 15th, according to Freddie Mac. That’s an increase of .75 percent, meaning that the Fed’s .25 percent rate hike has already been factored into today’s mortgage rates.

Today’s situation parallels what we saw in 2015 when the Fed likewise raised rates by .25 percent last December. At the same time, rates for prime mortgages—loans with 20 percent down—rose to 3.97 percent and then fell back more than half a percent during the next six months.

It can be argued that mortgage rates in 2017 will increase but not substantially. Historically, of course, mortgage rates in the 4.5 percent to 5 percent range have been seen as entirely affordable and a delight for borrowers. It’s only in the context of the past few years that today’s rates are regarded as “high.”

“The era of ultra-low interest rates is over,” says Lawrence Yun, chief economist with the National Association of Realtors. “Today’s short-term rate hike will be followed by several additional rounds of increases in 2017 and 2018. Despite these moves, mortgage rates will not rise alarmingly. By this time next year, expect the 30-year fixed rate to likely be in the 4.5 percent to 5 percent range.”

Such higher rates mean that lenders will have to open the credit box to generate more originations.

“Rising interest rate dynamics set the stage for tougher affordability assessments, especially for those with imperfect credit. Lenders will need to find ways to take and manage credit risk to fuel a robust housing market,” says Tom Booker, managing director of the Collingwood Group.

The Case for Lower Mortgage Rates

While there is surely a case for higher rates, it’s worth considering that there’s also a case for steady mortgage rates and even rates that are lower than we are seeing today. As Patrick Barnard with MortgageOrb has reported, as of mid-December mortgage application volume had fallen for seven consecutive weeks. Going back to that supply-and-demand thing, it’s hard to see how rates will go up substantially when loan demand is plummeting.

The recent surge in mortgage rates brought us to 4.16 percent on December 15th, not terribly higher than the 3.97 percent we had a year ago. The .19 percent increase will impact only the most marginal borrowers because monthly mortgage costs will hardly budge. For instance, a $150,000 mortgage over 30 years at 3.97 percent has a monthly cost for principal and interest of $713.53. At 4.16 percent the cost rises to $730.03, an increase of just $16.50.

Assuming that wage growth continues, an extra $16.50 is simply not a big deal. The problem is that wage growth for many workers has been stagnant for years: Between 1980 and 2014, half the population saw no wage growth after inflation, according to a new study by economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman.

But what about those three additional Fed increases predicted for 2017?

They may well be predicted but they have not actually happened. Several Fed hikes were also expected for 2016 but only one panned out. It’s entirely possible that there will not be three Fed rate increases in 2017, in part because what’s good for banks is not necessarily good for the rest of the economy. It’s worth noting that on December 14th, the day the Fed announced its rate increase, the Dow fell 118.68 points, scarcely an endorsement of the Fed action. Lastly, even minor interest rate increases are a huge problem for a federal government burdened with trillions of dollars in debt.

Cash & More Cash

The US is a huge part of the international economy and it’s reasonable to expect that if US interest levels rise, then additional cash from overseas will start flowing our way in bigger volumes, a movement which will push down mortgage levels here. In fact, the impact of the worldwide cash surplus can already be seen.

First, today’s situation is not new. As low as they are, US interest rates have been substantially higher than overseas options for some time—one of the reasons our interest rates have been in a trough for several years.

Second, US banks have so much cash on hand that they have elected to withhold huge sums from the marketplace. Excess reserves on deposit with the Federal Reserve amounted to nearly $2 trillion in October.

Third, according to BlackRock, an estimated $37 trillion in cash worldwide is now invested at less than .5 percent and $13 trillion is invested with negative interest rates even though investment options in the US plainly exist. These sums are so enormous that there is no realistic level of demand which can quickly force materially higher interest rates.

Lastly, if you combine vast pools of low-cost capital as well as huge demand within the US for bargain-basement mortgage rates, it’s possible for nonbanks—lenders without depositors or access to Fed funding who get their money from banks, Wall Street and investors worldwide—to serve real estate borrowers by simply going around the Fed and getting lower-cost capital overseas. As figures from Inside Mortgage Finance show, nonbanks now originate more than half the mortgages generated by the nation’s top 50 lenders. For that reason alone, higher rates in 2017 are hardly a sure thing.

Peter Miller freelance writer at Ten-XPeter Miller is a contributing writer for Ten-X and as well as a nationally syndicated newspaper columnist. He is the author of the 2016 edition of The Common-Sense Mortgage.