May 12, 2010 by MSI
As 30-year mortgage rates hit a six-week low last week, speculations continue about where the rates will go this year. Will they rise or not? Can the economy sustain an increase, or will it send housing into a further decline?
Home mortgage rates for a 30-year fixed loan were at 5 percent on May 8th, still higher than the 4.84 percent we experienced at this time last year, but down since the beginning of 2010.
In February, according to the S&P/Case Shiller index, home prices nationally rose a modest percentage, which was the first time we have seen an increase since 2006. Coupled with a quickly rising consumer spending index and median prices for existing homes rising in much of the U.S., it seems as though we’re on the way to a recovery, albeit a slow one. With the tax credit expiring on April 30th, the coming months will certainly confirm whether the key real estate indicators during the first quarter of this year were a masked effect from the housing credit, or if we’re really on our way to recovery.
The U.S. government has continually noted that current economic conditions, ‘warrant exceptionally low levels of the federal funds rate for an extended period,’ but the question continues regarding the timing of when this message will change and the Fed will adjust the rate, driving up mortgage rates.
Although signs seem to be positive for the first quarter of this year, there is still a lot of uncertainty around unemployment, housing and foreclosures. The national unemployment rate still sits at over 9.7 percent, near a 26-year high, and economists are not predicting significant improvement until the end of 2011. As foreclosures and delinquencies seem to be leveling off, there are still millions of foreclosed properties either on the market or in ‘shadow-inventory’.
While the government would certainly like to focus on reducing the central bank’s balance sheet, it’s unlikely that we will witness any significant increase in rates this year. More likely, the economy will continue its slow recovery and we will all have to sit and wait for 2011.