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Freddie Mac: Low Rates Likely to Stick Around
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 year's end.
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 of 2011.
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.