Mortgage Rates to Stay Near Record Lows

By Mike Colpitts

Mortgage rates, hovering at record lows for nearly three weeks, should remain close to their all-time low levels for most of at least 2012. new home dreamers That’s the evaluation of Housing Predictor analysts after reviewing rate levels and the challenges the U.S. economy is facing.

In an effort to keep mortgage rates low and reinvigorate the housing market, the Federal Reserve has kept its benchmark lending rate at or near 0, and intends to keep it there for the foreseeable future. The 30-year fixed rate mortgage reached an average of 3.88% last week, according to Freddie Mac.

However, waiting to see how much lower or if rates are going to move even lower may be at worst a “fool’s game” and at best a gamble that few people want to chance.

The Fed has also purchased billions of dollars in mortgage-backed securities to aid the U.S. economy, while Freddie Mac and Fannie Mae, the nation’s mortgage giants through the Federal Housing Finance Agency, their overseer, has forced lenders to purchase back mortgages that have gone bad.

Current unemployment of 8.5% shows an improvement over the past year, but with this many people out of work that can’t buy homes the housing market faces long term challenges. It’s likely that after holiday workers are laid-off the rate will move back-up, and with many people giving up looking for work all together there are a slew of reasons that lack optimism for the immediate future.

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Government estimates forecast the U.S. economy will grow by 2.1% in the first quarter, but government estimates are usually overly optimistic and shed little reality on the real economic future.

However, Freddie Mac expects home sales to grow between two and five-percent for the year, which Housing Predictor concurs with for 2012. The rate at which home sales rise is almost fully contingent on low mortgage rates and they are expected to remain very low for the year.

“With the new year comes a sense of cautious optimism,” said Freddie Mac chief economist Frank Nothaft. “There are some positive signs in the job market and consumer confidence. Housing is starting to raise hopes for continued gradual economic recovery. But the economy still is giving some mixed messages.”