mortgage

Rates halt decline, up this week

Mortgage rates went up this week, as economists declared that the recession is over.

The benchmark 30-year fixed-rate mortgage rose 10 basis points to 5.32 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 0.34 discount and origination points. One year ago, the mortgage index was an eye-popping 6.74 percent; four weeks ago, it was 5.38 percent.

The benchmark 15-year fixed-rate mortgage also rose 10 basis points, to 4.7 percent. The benchmark 5/1 adjustable-rate mortgage rose 10 basis points to 4.76 percent.

This week, four in five economists surveyed by the National Association of Business Economics said that the recession has ended and the economy is in recovery. But they expect the economy to remain in the critical care unit for a long time, with a high unemployment rate lingering all next year.

Weekly national mortgage survey
Results of Bankrate.com's Oct. 14, 2009, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:5.32%4.7%4.76%
Change from last week:+0.10+0.10+0.10
Monthly payment:$911.14$1,274.08$854.76
Change from last week:+$10.23+$8.48+$9.92

Jay Brinkmann, chief economist for the Mortgage Bankers Association, expects the job situation to stay grim for years, with mixed news for home prices and mortgage rates.

Delivering his economic update at the MBA's annual convention in San Diego this week, Brinkmann says he expects the unemployment rate to top out at around 10.2 percent in the second quarter of next year. From there, he expects it to decline slowly, finally dipping under 8 percent in the last three months of 2012.

Jobs and homeowners

Job losses play havoc with homeowners. If they can't find jobs within a few months, many homeowners end up losing their homes to foreclosure or distressed sale. With the jobless rate forecast to remain high for so long, Brinkmann doesn't expect much improvement in delinquencies and foreclosures for a long time. And that leads to a provocative forecast of home prices.

In 2008, the median price of a resold house was $198,100. The median price means half of the houses sold for more. Brinkmann expects the median price to fall to $172,200 for all of this year, and to rise gradually, to $185,500 in 2012, which is how far out his forecast looks. In other words, he believes it will take more than four years for house resale prices to recover to where they were in 2008.

Whether this is good news depends on whether you're a seller or a buyer. It's good news, especially for first-time buyers, because it means that these people will have plenty of time to shop. Partly because of first-time homebuyers, Brinkmann expects sales of starter homes to be more brisk than other segments. That emphasis on smaller, inexpensive houses is part of what drives down the forecast median price.

But house prices are only part of the affordability equation. There's also the issue of interest rates. And Brinkmann expects them to rise, slowly but substantially, over the next four years.

Specifically, he expects a modest decline in mortgage rates in the final three months of this year. Then comes the slow rise in rates. Brinkmann forecasts that the 30-year fixed will average 5.1 percent for all of this year. (In Bankrate's weekly survey, the 30-year fixed has averaged 5.44 percent so far this year; the MBA uses a different methodology and its rate averages are usually about 0.3 percentage point lower than Bankrate's.)

Brinkmann predicts that the 30-year fixed will average 5.4 percent in 2010, 6 percent in 2011, and 6.3 percent in 2012. Although that might sound scary in this time of historically low rates, it's instructive to remember that, in Bankrate's survey, the 30-year fixed averaged 6.23 percent in 2008, and 6.4 percent in 2007.

In the market for a mortgage or a refinance? Find the best interest rates offered at Bankrate's rate tables.

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