Mortgage rates barely budge

Mortgage rates appear to be taking a holiday-season nap, changing little in the past week.

The benchmark 30-year fixed-rate mortgage fell 1 basis point to 6.33 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.30 discount and origination points. One year ago, the mortgage index was 5.75 percent, and four weeks ago it was 6.32 percent.

The benchmark 15-year fixed-rate mortgage fell 1 basis point, to 5.91 percent. The benchmark 5-year adjustable-rate mortgage rose 2 basis points, to 5.9 percent. There wasn't much news to move bond yields in the past few days, and that meant steady mortgage rates.

Better-than-expected news about housing starts added some helium to the mortgage rate balloon, but a smaller-than-expected increase in core inflation tethered it firmly to the ground.

The inflation news came via the producer price index, a measure of wholesale prices. The core PPI, which is what you get when you strip out volatile energy and food costs, rose 0.1 percent in November; the consensus forecast among economists had been a rise of 0.2 percent.

Economists' forecasts for 2006 are starting to come in, and the predictions might comfort most buyers, sellers and refinancers.

There's a broad consensus that rates will rise in 2006, but not by much. David Seiders, chief economist for the National Association of Home Builders, predicts that the average rate on a 30-year fixed will rise half a percentage point through 2006. By contrast, the 30-year fixed has risen almost a percentage point since this time last year.

Seiders thinks home price appreciation will settle down in 2006, slowing to a more sustainable level. "We've been seeing record appreciation for some time," he says, with little deceleration in the third quarter of this year -- contrary to Seiders' previous forecast of a slowdown in the last half of this year.

But he really believes the slowdown in price appreciation is coming, and that the nationwide average price of a home will rise about 6.5 percent in 2006 and 4.4 percent in 2007. This year, after all the data are in, it looks like the national average home price will rise between 10 percent and 11 percent, as measured by the Office of Federal Housing Enterprise Oversight's house price index.

The slowdown in price growth, and the factor of gradually rising interest rates, might tip the balance of power a little toward buyers because they won't feel quite as panicky that housing affordability is slipping out of their grasp. But it won't be a bad market for sellers except for amateur investors who bought houses and condos on the expectation that double-digit price appreciation would continue for another year or two.

Seiders says investors are a wild card in his forecast. In some markets on the coasts, home or condo prices could stall if investors try to sell their units all at once. At that point, you're talking about mass psychology and not economics.

Seiders' economic forecast was paired with the predictions of Jim Glassman, senior economist for JP Morgan. It was billed as a debate, but it wasn't. They agreed on pretty much everything.

Glassman says he has heard anecdotes about real-estate prices falling in South Florida, southern California and in and around New York City, but he hasn't seen firm data. In fact, he says, the hottest markets won't necessarily slow down the most.

"You get the impression we're pretty sanguine about the broad economic outlook," Glassman says. He notes that there has been a lot of debate recently about the role of interest-only and payment-option adjustable-rate mortgages: whether they enable real estate speculation. Glassman views these loans benignly. Rather than enabling speculation, they smooth things out a bit, he says: The affordable loans allow investors to hang onto their properties instead of dumping them on the market in a price-depressing panic.

Jim Svinth, executive vice president of capital markets for LendingTree.com, also believes that exotic ARMs are a tool that should be characterized as neither good nor bad.

"I don't think there are any bad products," he says, "but there are uninformed consumers."

So it's up to borrowers to ask questions and decide which loan is best. Just as you wouldn't buy a Prius to haul heavy loads across the country, or an 18-wheeler to commute five miles to work, you shouldn't get an interest-only mortgage to buy a house that you plan to live in for the rest of your life, or a 30-year fixed for a place that you plan to sell in a couple of years.