In the last two weeks, we have seen interest rates start moving upward. Many people will say it had to do with very light volume in the market due to the holidays and that can really show volatility in the market. However, we have also been hearing for several weeks that rates will start to increase in 2010.
The Federal Reserve Board lowered short term rates and have provided billions of dollars to keep interest rates artificially low to stimulate the economy. The Fed has said that they will stop buying mortgage backed securities March 31, 2010. The Fed will have spent about $1.25 trillion by the end of March to keep rates low. With that ending, we expect rates will increase over the next few months.
Some mortgage investors are saying that the December sell-off in the mortgage markets pushed rates too high and they feel rates will drop back down. Others are looking at this Friday's nonfarm payroll report for December and expecting it to show the first month of job growth since December 2007. That is cause for rates to increase as it will show the economy is re-bounding.
The biggest concern for homebuyers is that as interest rates rise, some buyers will be priced out of some homes. The difference between 5 and 6% on a $200,000 mortgage is just over $100/month. That will make a big difference in what you can afford in a new home.
No one knows for sure what will happen. My best "educated" guess is that rates will start to increase and I wouldn't be surprised to see us back up near 6% by the end of 2010 – and I may be totally wrong!!! However, if you are looking at refinancing or buying a new home, I would tell you to expect that rates are going to have a better chance of increasing than decreasing! If you are concerned about payments and what you can afford, this is a terrific time to buy as home prices are still low (but starting to increase) and rates are still fantastic.
