Saturday, December 26, 2009

Freddie Mac economist: 6% Mortgage rates by end of 2010

by Bill McBride on 12/26/2009 11:30:00 AM

From Dina ElBoghdady at the WaPo: Freddie sees mortgage rates hitting 6% in 2010

[T]he average rate on a 30-year, fixed-rate mortgage rose to 5.05 percent this week and could climb to 6 percent by the end of 2010, if not sooner, according to giant mortgage financier Freddie Mac.
...
The key catalyst for interest rates going forward will be the end of a Federal Reserve program that buys a sizable chunk of mortgage-backed securities issued by firms such as Fannie Mae and Freddie Mac. ... the Fed has committed to winding down the program by March.
...
Amy Crews Cutts, deputy chief economist at Freddie Mac, said interest rates are bound to rise to 6 percent by the end of 2010 because private buyers will demand a higher rate of return on the securities than the Fed did.
This is similar to the comments made by Mark Zandi of economy.com earlier in the week:
"If you told me by the end of 2010 a 30-year rate was at 6 percent, that sounds about right," says Mark Zandi, chief economist at Moody's. "I don't think there's any question rates are headed up."
Rates are definitely moving up, and they will move higher as the Fed winds down the MBS purchase program. Although 6% is possible, I'll take the under in 2010. The reason is I think the recovery will be sluggish and choppy - and that will keep rates down.

Note: Some people think 30 year mortgage rates will increase 100 bps or even 200 bps when the Fed stops buying MBS - so they expect 6% to 7% mortgage rates by April - but I think that estimate is too high.