The Federal Reserve has been supporting the mortgage market for some months now and that effort is slowly coming to an end. The question is what happens when the Fed support ends? In a normal world private investors would step up and buy the Mortgage Backed Securities (MBS) but that had not been happening so enter the Fed. What is likely is that to attract investors the returns (yields) will have to be higher to allow for the risk these private investors will be taking. This risk allowance means higher rates. If private investors don’t participate that leaves the government and FHA as the only games in town. Neither of these options is especially attractive or sustainable and may be politically challenging.
Moody’s has recently expressed concern over our huge debt which could put pressure on rates unless a “credible plan is put in place to address our debt issues”. A well known Morgan Stanley analyst has said that the 10 year Treasury yield could go as high as 5.50% in 2010 (the yield was 3.84 at the end of 2009) which could push mortgage rates to north of 7%! Finally, the chart below shows that since early 2004 we have generally had mortgage rates at or below 6%.
TIP: If you want to watch an index that is a good indicator of the trend in mortgage rates watch the 10 year Treasury Yield. You can find it at www.cnnmoney.com/markets/bonds and save it to your favorites for reference.
2010 OUTLOOK: Look for mortgage rates to approach 6% and perhaps higher depending on market conditions.
When Rate
This Week 5.14
11/26/09 4.78
10/1/09 4.94
7/2/09 5.32
4/2/09 4.78
1/1/09 5.10
1/3/08 6.07
1/4/07 6.18
1/5/06 6.21
1/6/05 5.77
1/8/04 5.87
Note that actual market rates vary geographically and by lender, credit score and Loan to Value.
Source: Federal Reserve Statistical H.15.
Michael Pittman
Keller Williams Sonoran Living
Realtor®
602-622-2776 Main
602-258-7035 Home
