Mortgage Rates Rise but Fear Not

Feb 23rd, 2012

Mortgage rates came off historic lows this week, but remained appetizingly low as sales of previously owned homes picked up steam last month.

Fear not if you don’t feel ready to refinance or buy, or if you don’t qualify. Mortgage rates likely won’t move too much over the next year, says Paul Edelstein, director of financial economics at IHS Global Insight.

“Housing is really the laggard in the economic recovery,” he says, “so the (Federal Reserve) will continue to prop up the mortgage market to induce people to buy houses.”

The central bank’s policymaking committee promised last month to maintain its benchmark interest rate near zero until late 2014, making borrowing cheap for consumers (and for businesses). The Fed also continues to buy longer-term Treasuries and mortgage-backed securities to help keep a lid on mortgage rates.

Ancillary factors such as Europe’s ongoing debt saga may flick rates up or down several basis points as investors hedge risk by buying safer investments such as Treasuries. (The 30-year mortgage rate often tracks the yield on the 10-year Treasury bond.)

But the situation overseas would need to unravel for mortgage rates to dive further, Zandi says. The more likely scenario is slow growth in the economy and a crawl upward in rates.

“They will drift higher. They will be a little higher a year from now and definitely much higher two years from now,” he says.

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