Rates on the rise
During a CNBC analysts corner - discussion centered around forecast mortgage rates for 2010. The concensus of almost all the analysts is that mortgage rates will rise next year, but not terribly quickly nor dramatically higher than where we have seen them at times this year.
Mortgage rates opened up this morning while the stock market was in rally mode, but dropped back to levels we saw yesterday when the market suddenly went into reverse and ended up closing down on the day. The best rates for 30 year fixed rate mortgages, at the close, are still around that 5% mark.
The forecast for rising mortgage rates is based on two big factors:
1. The feds are scheduled to stop buying mortgage backed securities at the end of the first quarter of 2010. Barring an extension of that date, or some other new program, the subsidy will end which would very likely cause mortgage rates to rise.
2. The weakness of the U.S. dollar makes bonds less and less attractive to foreign investors. When there is less demand for our bonds, as with all competitive bids, the price goes down.
Bond yields move in the opposite direction of price. A falling bond price will cause a higher bond yield. Since mortgage rates are, in large part, linked to the yield on the 10 year Treasury bond, a rising yield on that bond will drive mortgage rates UP!
The Obama administration has announced that the falling value of the dollar is a concern. Initially it was thought that the administration was supporting the falling value of the dollar because it is, in some ways, good for American companies that do business overseas. U.S. made products are cheaper to import globally because of our lower valued dollar, so our exports rise.
But the falling value of the dollar has gone "out of control." "Today the dollar hit a 14 month low against other currencies. The falling dollar caused oil prices to break through a significant point of resistance.
The problem now is how to buoy the value back up. If the administration keeps printing money, if inflation rears its ugly head - and more ifs, the dollar should continue to fall. If the dollar stays up, oil prices will continue to rise, which will fuel inflation.
The forecast for next year's mortgage rates is that by the end of the second quarter, 30 year fixed rate loans will average between 5.37% to 5.5%. It is expected that by year end 2010, rates will be more in the 5.5% to 6% range.
It remains to be seen how this will impact the housing market, but there are more variables on that end anyway.
Other articles you might like to read:
What the falling value of the US dollar means to you
Oil blows through $80 point of resistance
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