What's Happening with Mortgage Rates?

Freddie Mac has made home ownership possible for one in six homebuyers and more than five million renters. It was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets, and supports communities across the nation by providing mortgage capital to lenders. According to Frank Nothaft, Freddie Mac vice president and chief economist, "Mortgage rates eased slightly this week after rising consecutively through December. Current interest rates for fixed-rate mortgages are just about at their annual average for 2009, while ARM rates are considerably below their averages for last year."
The 30-year fixed-rate mortgage averaged 5.09 percent with an average 0.7 point for the week, down from last week when it averaged 5.14 percent. Last year at this time, the 30-year FRM averaged 5.01 percent.
According to Norhaft, "As the economy strengthens further and the Federal Reserve decides to raise its overnight target rate, ARM rates will follow suit because they are typically tied to shorter-term interest rates. However, the federal funds futures market does not anticipate any Fed action until the second half of 2010."
Interest rates can only go up from here. The 30-year fixed rate for a conforming loan ($417,000 or less) hovered around 5% for most of 2009 — the lowest rate in 38 years. Jumbo rates fell to a four-year low (in early November, 5.3% for a conforming jumbo of up to $729,750 and 6% for a traditional jumbo). By mid-2010, conforming rates will rise to 5.5% or above and close the year at 5.75% to 6%, according to mortgage analysts Jumbo rates will be 6.25% or a bit higher by the end of 2010. This forecast assumes that the economy will improve a bit and inflation will reappear.
The wild card in that forecast: whether the Federal Reserve stops buying Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities in March, as planned. The program has probably tamped down rates by about three-fourths of a percentage point. The Fed could carry on if it thinks the mortgage market hasn’t recovered enough.