Mortgage rates will likely remain below 5 percent for about
another year, but should gradually start rising toward that mark as
economic growth picks up and home sales rebound, according to the
latest Freddie Mac economic forecast.
The government-supported mega-lender predicts that mortgage
interest rates will be largely unchanged over the next six months,
then will gradually rise through the last three quarters of 2011.
Specifically, it forecasts that average interest rates on 30-year
fixed-rate mortgages will remain around 4.4 percent through the
final three months of this year, rising to 4.5 percent in the first
quarter of 2011, then gradually continue upward to 5.0 percent by
However, the forecast was issued before today's release of the
minutes of last month's meeting of the Federal Reserve Open Market
Committee, which strongly suggest that the Fed will take action to
free up credit at next month's meeting. Such a move would could
send rates even lower than they already are.
The October forecast predicts that an improving economy will
drive a rebound in home sales throughout 2011, despite the gradual
increase in mortgage rates. The forecast predicts that U.S. gross
domestic product will perk up next year to its fastest rate of
growth in a decade, increasing at an average annual rate of 3.8
percent, compared to an anemic 1.7 percent rate reported for the
second quarter of 2010.
Home sales are expected to have bottomed out in the third
quarter of 2010, at an annual rate of 3.78 million, their lowest
since the crash and down from a tax credit-boosted 5.22 million in
the second quarter of the year. The sales rate is expected to
steadily increase by about half a million units each quarter
through the end of 2011, reaching an expected annual rate of 6.0
million in the fourth quarter of the year.
Single-family home construction starts are predicted to increase
by two-thirds over the coming year, from a current annual rate of
around 600,000 units to a rate of 1.0 million in the fourth quarter
Despite a discouraging jobs report from September, the report
pointed to several factors that it said indicated slow, but steady
growth in the economy. These included a 0.5 percent increase in
personal incomes in August, the biggest increase all year, and
gradual gains in private sector hiring. A steady decline in
household debt over the past two years has also eased a significant
drag on the economy, the report said.
The forecast calls for a weak recovery in employment even as the
housing market picks up, with unemployment declining only to 8.5
percent by the end of 2011, down from 9.6 percent currently.