Home Mortgage Rates Set to Move Higher in Spring

Elevation 3

NOW maybe the last opportunity to take advantage of the low interest rates. The low rates and the available tax credits makes this a great time to buy.

Reed Construction Data economist sees upward pressure on home mortgage rates

Jim Haughey, Chief Economist, Reed Construction Data

November 17, 2009 as reported by HousingZone

30-year fixed mortgage rates, averaging 5% so far in 2009, could jump as much as 100 basis points next spring when the Federal Reserve Board stops buying mortgage backed securities from the federal housing finance agencies. Freddie Mac, Fannie Mae and FHA now provide most of US mortgage financing. And the Federal Reserve Board buys about 80% of the bonds they issue to get the mortgage capital. So far the FRB has bought $900 billion in bonds and has announced that it plans to raise the total to $1.25 Trillion by the end of March and then begin selling its agency bond holdings.

Mortgage rates will rise quickly when the housing financing agencies have to sell all of their bonds in the private capital market. The added supply of bonds will lower bond prices and correspondingly raise bond interest rates. 30-year mortgage rates were over 6% through summer, 2008 before the FRB acted to take over mortgage financing. How quickly mortgage rates rise depends on how aggressively the FRB moves to sell its’ $1.25 Trillion stock of agencies bonds.