Friday, January 21, 2005

Mortgage rates are going to rise this year.

Mortgage rates are going to rise this year. You can be as certain of that as you were when the same predictions were made that rates were going to rise in 2004. And 2003. Which they didn't.
CBS Marketwatch



But this year we may be looking at the real thing. A combination of factors -- a Federal Reserve bound and determined to raise short-term rates to a point of "neutrality," a job market that finally seems to be picking up steam if not actually being steaming hot and an inflation picture that is the least benign it has been in four years and -- are poised to bring to an end a "goldilocks" era for mortgage borrowers.

Rates aren't expected to go all that much higher, perhaps to 6 1/4 percent to 6 1/2 percent for a 30-year, fixed-rate loan by the end of the year from the 5 3/4 percent of today. That shouldn't put too much of a crimp in the average homebuyer's budget.

The problem is that home prices have risen so high in some parts of the country that any increase in interest rates is going to bump a lot of people off the homeownership track. And that is why economists think housing sales will decline this year by anywhere from 4 percent to 7 percent, nothing really to get agitated about considering we're coming off three record years for the housing industry.

What we may learn this year is just how much of a shift there has been in people's attitude toward real estate. There has been anecdotal evidence that following the stock market collapse in 2000 and the terrorist attacks of 2001, Americans have become more willing to allocate more of their resources toward housing -- driving not just homeownership and home prices higher, but also fueling home remodeling and vacation-home purchases.

As mortgage rates head higher, those notions will be put to the test. Although maybe, to be safe, we should say if mortgage rates head higher.

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