Economic policy can be a double-edged sword, and that was abundantly clear with respect to mortgage rates at the end of the year.

Optimism over the tax bill resulted in higher interest rates, and that caused total mortgage application volume to drop 2.8 percent in the last two weeks of 2017. The Mortgage Bankers Association included an adjustment for the Christmas holiday.



Applications to refinance a home loan, which are most rate-sensitive, fell 7 percent during the period but ended the year 1.8 percent higher than at the end of 2016. Interest rates were also higher at the end of 2016 due to a spike following the presidential election.



After jumping 9 basis points during the third week of December, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $424,100 or less remained unchanged for the last week of the year at 4.25 percent, with points increasing to 0.36 from 0.35, including the origination fee, for 80 percent loan-to-value ratio loans. That was the highest rate since April.



"With the passage of the tax reform bill, there were increased expectations of stronger economic growth, which pushed rates higher," said Joel Kan, an MBA economist.



Mortgage applications to purchase a home, which are less rate-sensitive week to week, increased 1 percent in the final two weeks of the year and ended 3 percent higher than at the end of 2016.



Overall, interest rates did not make any major moves during 2017, and not much is expected for 2018 either. The Federal Reserve may continue to raise its lending rates, but mortgage rates, which loosely follow the yield on the 10-year Treasury bond, are influenced by other factors, especially volatility in overseas markets. Refinance volume is unlikely to increase dramatically in 2018, given that so many homeowners already refinanced at record-low rates.



As for homebuying, that will depend more on the supply of homes for sale than on the interest rate on any given day. Supply continues to fall as demand rises, leaving potential buyers to face increasingly high home prices.