Long-Term Rates at 6% by Year-End

According to the latest Housing & Mortgage Market Review published by the PMI Group, Inc., mortgage interest rates for 30-year fixed loans are projected to hit 6.00% by the end of 2010. Long-term interest rates have generally headed higher since the end of November, probably in response to signs of economic recovery, PMI noted. The California-based company expects this trend to continue, with a notable increase coming in Q2, influenced largely by the Federal Reserve’s withdrawal from the secondary mortgage market. Another government housing stimulus program – the federal home buyer tax credit – is also expected to leave a significant mark on housing conditions.

The first-time home buyer tax credit pulled sales forward into the months before it expired in November, PMI explained. Even with the extension and expansion of the credit, the company’s report says it’s likely that there will be a payback period from the original tax credit. Looking ahead, PMI says sales should climb more strongly in 2010, once the payback period from 2009’s tax credit comes full circle. As the job market finally starts to improve and credit markets function better, existing sales should climb by 7.7% and new home sales by 35.5%, PMI said in its report. The continued oversupply of homes on the market still weighs on house prices, although the pickup in sales has tempered this, the company said. Following a projected decline in existing home prices of 12.7% for 2009, PMI says prices should fall by another 5.0% this spring. However, stronger sales and reduced inventory should allow prices to remain relatively flat over the course of 2010, the company concluded.