If you are thinking of getting a mortgage and want to know what will happen to mortgage rates next year, keep your eyes on the Fed.
A forecast by the Mortgage Bankers Association predicts that the 30-year fixed rate will remain below 4 percent through the first half of the year. The forecast assumes that the Fed will keep the third round of quantitative easing, its mortgage bond-buying program, alive.
But what if the Fed pulls the plug on QE3? Rates would likely rise without notice.
Mortgage rates have dropped about a quarter of a percentage point since the Fed announced it would spend $40 billion a month in mortgage bond purchases, says Michael Fratantoni, MBA's vice president of research and economics.
"That was enough to take our refi application index to the highest level in four years," he told reporters at the MBA's annual conference. "A lot of that refi volume is going to spill over to (the first half of) 2013."
Based on the MBA's estimates, the Fed will buy 36 percent of all mortgages originated in 2013, says MBA's chief economist Jay Brinkmann.
"The Fed's purchases during the second half of 2013 could approach 50 percent of all mortgages originated in the last six months of the year," he says.
Any doubts about who rules the mortgage world?