As a kick off to the new year we thought we would check in with our favorite mortgage broker and friend, Rob McAllister at West Seattle Mortgage. For a primer on mortgages and how rates effect payment start out by taking a look at this short 3 minute video.
Here is what Rob has to say about how we got where we are and what we can expect in the coming year:
Forecasting rates for 2010 will be much easier than in past years. Although I don’t have a crystal ball, I do have very solid reasons to feel certain we will see interest rates go up throughout 2010. Mortgage interest rates are tied to the bond market and in 2009 the Federal Reserve (Fed) was purchasing mortgage bonds as a means to keep rates low. The Fed allocated 1.25 trillion dollars toward purchasing mortgage bonds and did a very effective job of keeping rates down to stabilize the housing market. However, the well is coming dry very soon and the Fed announced last fall that they didn’t plan to allocate any more money toward the bond purchase plan beyond the end of March, 2010. When the Fed departs as a buyer it will leave only the private investors, decreasing the demand for bonds and dramatically bringing prices down. In the bond world when prices fall, rates go up.
So the big question for me isn’t whether rates will go up or down. The question becomes when will the end for lower than 5% rates come, and how high will rates go in 2010? For that I think the answer has already presented itself. Mortgage bonds fell below a key level of support (200-day moving average) back on December 21st and haven’t been able to push back above this tough ceiling since. I think we will see rates in the 4.75% – 5.25% range for a conventional 30 year fixed loan for another month. Then sometime in February we will see rates begin their inevitable climb to the mid-5’s and perhaps the high 5’s by late March. Things could certainly get worse given the concern about inflation and the amount of Treasury Bonds that are being issued to fund the Federal Budget deficits. If the Fed begins to talk about concern over inflation this could push rates up over 6% very easily by the middle or end of the 2nd quarter. I do think the Fed will keep their Federal Funds rate at its current .25% through most, if not all of 2010, but the Feds comments about inflation may still have an impact on longer term bond performance; including mortgage bonds.
So buyers and folks looking to refinance or buy a new home should take a hard look at their plans if they want to lock in the low interest rates that we’ll likely not see again in our lifetime. Keep in mind that just 20 years ago (1990) the average interest rate was 10.13% with 2 points origination (national average). Though I don’t see rates rising to 10%, I do think we can expect interest rates to go from the low 5’s early this year to the mid-6’s by the end of the year. It’s going to be a volatile year for mortgage bonds, and thus interest rates, so you will see days that swing higher and days that swing lower. Overall we will see them trending higher, so don’t wait to act if you plan to buy a house in 2010… after the 1st time & move-up buyer tax credits expire in April things may look a lot different.
Warm Regards,
Domenica
Windermere Real Estate
