Mortgage Rates at the Start of 2010
As you consider the future of mortgage rates, it's interesting to look at what has been happening fairly recently. Freddie Mac has found that rates have remained rather steady. The week ending January 28, 2010 had an average 30-year, fixed-rate mortgage (FRM) rate at 4.98 percent with an average 0.6 point. It was a tiny reduction from the previous week, when the rate was 4.99 percent. At the same time last year it was 5.10 percent.
Recent data from the Mortgage Bankers Association (MBA) also showed little variation. Its report revealed that the average rate for the same mortgage loan product around that same time increased only 0.02 percent, with points adjusting 0.05, including origination fees. Disappointingly, the MBA also reported a drop in mortgage loan applications, both for new purchases and home refinances.
Mortgage Rates to Rise?
It seems that fewer analysts expect today's mortgage rates to remain at their current low levels for long. And this widespread expectation was reinforced when the Federal Reserve Open Market Committee (FOMC) issued a statement containing two pieces of bad news for those who prefer low mortgage loan interest rates. First, it said:
To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.
Although the last sentence gives it a way out, this confirms that the Fed plans to stop buying mortgage-backed securities, as previously planned, by March 31, 2010. This means that the private sector once again must take over such purchases, and--because private investors require higher rates to cover the inherent risks in investments--there is likely to be an upward pressure on mortgage loan rates.
Second Piece of Bad News
The second piece of bad news in the Fed's statement concerns overall rates:
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
Although that reads as if rates will remain low for "an extended period" some experts are unconvinced. The Financial Times pointed out that the wording concerning inflation is different from that contained in the FOMC statement issued after its last meeting in December 2009. And it quoted Stephen Stanley, who is chief economist at RBS Securities:
We believe that monetary policy is going to shift hard and fast this year, with liquidity adding through March flipping to significant liquidity draining by late April or early May and rate hikes beginning in June. The FOMC is clearly not there yet, but the tone of today's statement suggests to us that policymakers are finally beginning to think more seriously about formulating their exit strategy.
Don't Get Caught Out
If Mr. Stanley is right in his forecast of "rate hikes beginning in June," then those who delay purchasing a property, or undertaking a home refinance, may find themselves paying more each month in mortgage loan repayments than if they had acted right away.
If you're in that position, you can compare mortgage rates now.