Projections Indicate Rates Will Rise In 2010

Kathryn and Holly at Yampa Valley Bank have been listening to teleconferences about projections for the mortgage market in 2010. Here is the bottom line – rates will be going up. Why?

The Fed has committed to buy mortgage bonds through 3/31/10. They have already slowed their purchasing and we have seen the consequences in the slightly higher long term rates. There is not much hope of an extension of the purchasing program. It is estimated that the Fed is currently purchasing 75% (!!) of the mortgage bonds, so if they are not purchasing bonds, rates will be higher even if other players step up their buying.

With short term rates being so low (Fed Funds rate is ¼%) it is easy for large institutions to borrow low and then invest in mortgage bonds, and make money on the spread. If short term rates start to increase, this will diminish mortgage bonds purchasing even further and push rates higher.

This is one more reason to purchase NOW or sellers might want to reduce their prices now before rates do deteriorate. A higher rate means less purchasing power. Forecasts show that the 30 year fixed rate may be in the mid 6’s by the end of 2010 with a volatile rate market throughout the year.

Kathryn Pedersen and Holly Rogers can be reached at 970-875-1609