If you haven’t read the 2010 Mortgage Rate Outlook by HSH Associates then you should. Especially if you are considering buying a home or refinancing a mortgage this year. Their forecast neatly lays out a case for higher mortgage rates by year end.

The driving factor will be the Fed’s program of purchasing mortgage-backed securities. It’s set to come to an end on March 31. By industry estimates the Fed’s current hand in the market means that conforming fixed-rate mortgages are about three quarters of a percentage point (0.75 percent) below where they would be otherwise. How much rates can rise depends on how much private investors will buy into the mortgage-backed securities market and how strong their demand will be. Right now it’s anyone’s guess. That to me is enough of a case that mortgage interest rates will be on the rise.

Need another reason? Here it is: the Home-Buyers Tax Credit will expire in April 2010. When this credit first neared expiration, there was a flurry of home-buying activity and an uptick in demand for mortgages, causing mortgage rates to rise slightly. So if there’s another rush of buying to take advantage of the credit between now and April, this could also cause rates to rise.

Also, with some improvement in the economy, the Fed will need to start laying out a plan to remove some of the massive amounts of liquidity it’s been pumping into the system. To that end, the Fed already announced it’s raising the interest rate it charges on short-term loans to banks by a quarter point. As the mortgage market transitions from near complete government support to being supported more by the private market, there should be a return to “normal” mortgage rates.

All this means so long to the low rates we are seeing now, which have been the best rates in nearly 50 years. Mortgage forecasters think rates could increase by a half percentage point to a full point, which is a big increase from the near five percent rates we are seeing now.

Home buyers on the hunt for bargains should still be able to find them. There is set to be another wave of failed loans driven by job losses and some that will fail again after unsuccessful loan modifications. Also, another batch of pay option ARMs will hit their five-year “recast” mark this year — many of these folks will not be able to afford the increased mortgage payments that include all the interest and a small amount of principal, even at interest rates of three to four percent. The result of this continued wave of loan failures is more homes on the already over-supplied market. Buyers should expect to continue to find reasonable or even cheap prices for existing homes. But the only direction for mortgage rates from here is likely up.
By Ray Martin

In this buyer’s market, along with the first-time home buyer’s tax credit stimulus, many people are finally able to take the plunge into home ownership. But for some, the waiting game seems to be paying off because, depending on the market, while some home prices are slowly creeping back up, some continue to drop. So in this stock market-type game, how do you know which way home prices are going in your neighborhood? Are there any indicators you could watch for to potentially give you a leg up?

Keith Vermilyea blogs about what you should be paying attention to if you want to get a better idea of which way home prices may be going.

“Traditionally, people have been willing to pay a modest premium to own a home rather than rent it. Recent studies report that in 1999 rents averaged 87 percent of the after-tax mortgage payment for houses and condos of similar size in the same neighborhood.

With historically low mortgage rates, plus the home buyer tax credit, this could be a great time to be buying or selling.”

Keith Vermilyea says that paying attention to rental rates in your area could serve as a good barometer as to which direction home prices may be headed in a neighborhood. If rental rates are going up, home prices will soon follow. Call me today for your free pre-approval. This way you will be armed and ready to purchase your home before it is too late~!!!!