Mortgage Rate Forecast January 2012

A rising mortgage rate forecast has strategic implications in terms of time of entry in the housing market, and generally incommercial real estate investment, as the investor needs to evaluate the risk of potential further property price declines in the future against the benefit of lower interest rates in the present; or alternatively, the discount in price that may be achieved by getting in the market later against the increased financing costs due to a potential rise in interest rates. Overall, the rate for a 30-year fixed-rate mortgage is predicted by MBA to decrease from an average 4.5% in 2011 to an average 4.3% in 2012 and then rise to an average 4.8% in 2013.

It should be noted though that the MBA mortgage rate forecast predicts that the rate for a 30-year fixed rate mortgage will increase by 30 basis points between the first and the fourth quarter of 2012 (from 4.1% to 4.4%) and by another 50 basis points from the fourth quarter of 2012 to the fourth quarter of 2013 (from 4.4% to 4.9%). Trends of declining mortgage rates have already been reported by the Federal Housing Finance Agency (FHFA) for 2011. According to the latest release of the FHFA’s Monthly Interest Rate Survey (MIRS) of purchase-money mortgages, the average interest rate on conventional 30-year, fixed-rate, mortgage loans of $417,000 or less registered a new 12-month low of 4.32, in December 2011. It should be noted that according to the FHFA survey, the 30-year fixed rate has been increasing since November 2010 and peaked to 5.06% in March 2011. Since then it has been declining steadily, with the exception of November 2011, when it increased slightly.

In sum, the latest MBA mortgage rate forecast points to declining interest rates until the first quarter of 2012 and rising mortgage rates thereafter.

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