2010 Rate Forecast

On the first market update of the new year, I want to give you my forecast for 2010 with a quick look back at the previous year.

A LOOK BACK: As most of you know, mortgage interest rates had a banner 2009 with rates consistently around 5% and dipping to 4.5% at the end of November. These record rates were the result of a Federal Reserve program which purchased mortgage backed securities from Fannie Mae, Freddie Mac, and Ginnie Mae. This program was designed to jump start a down housing market with super low mortgage interest rates. It, along with the homebuyer tax credits, did just that.

2010 FORECAST: We will start our 2010 forecast by discussing this Fed purchase program that had such a huge affect on interest rates in 2009. This program to purchase mortgage backed securities is set to expire at the end of March. This will obviously take a lot of money out of the pool that buys these mortgage backed securities. Most experts agree that this Federal money affected interest rates by about 1%. This leads us to believe that interest rates are set to go up about 1% as this program comes to an end. Our prediction then is that mortgage interest rates will range from their current level up to the high 6s this summer. However, there is a wildcard for the year that could send interest rates from the 6s and into the 7s. That wildcard is inflation. If our economy is in fact on the path to a recovery, then inflation will be the next concern that we will have to deal with and there is no bigger enemy to mortgage interest rates than inflation.

HOMEBUYER TAX CREDIT: I am not going to spend too much time on the homebuyer tax credit except to remind you that contracts need to be signed by 4/30/2010 and that the purchase needs to be closed by 6/30/2010.