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2010 Outlook for Housing Market and Mortgage Rates

First, let’s discuss the housing market. While home prices in most areas seem to be stabilizing, there is no question that the bottom may not have been reached quite yet from a price standpoint. There are many homes expected to go into foreclosure this year due to continued high unemployment, and based on the laws of supply and demand, that can only mean more downward pressure on home values. Additionally, banks currently are offering very aggressive prices on their current inventory of foreclosed homes, and in many cases are undercutting the common seller in order to get these homes off of their balance sheets. Also to consider is the fact that the homebuyer tax credit is set to expire in April 2010, and this credit has been a large driving force in creating demand for entry level homes. Finally, Fannie Mae and Freddie Mac have made it significantly tougher to obtain financing for both owner occupied and second/investment homes, so with the lending market taking some potential purchasers out of the market, once again the laws of supply and demand take hold and prices are affected. In conclusion, while the worst is probably over, there still may be some further unrest before the absolute bottom in home prices is found.

Now let’s move on to the outlook for mortgage rates. In short, our feeling is that mortgage rates will move up during 2010 due to two main reasons. First of all, the Fed has been purchasing “mortgage backed securities” in huge quantities over the last year or so, and this has been the main reason that mortgage rates have come down to historic lows. The Fed is due to stop purchasing these mortgage-backed securities this spring, and therefore will be a strong negative force against rates. Additionally, with the out of control spending by our government, it is only a matter of time until inflation rears it’s ugly head, and that will have an immediate upward impact on mortgage rates. Finally, if the economy shows signs of strengthening(of which there is no guarantee of that!), the rates will push up. So, it is our opinion that there will be upward pressure on mortgage rates in 2010, with a slight possibility of steady or declining rates if our economy has a “double dip” recession.