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Mortgage rate predictions for 2011

While housing prices are still dropping, mortgage rates are creeping up. How high will they go this year?

By Stacy Johnson Jan 26, 2011 1:41PM

This post comes from Stacy Johnson at partner site Money Talks News.

 

While some experts are predicting that home prices will stabilize and perhaps even go up this year, recent news isn't encouraging. The latest Standard & Poor's/Case-Shiller 20-city home price index revealed that prices dropped an average of 1.6% from November 2009 to November 2010.

But nothing goes down forever, and lower home prices are obviously good if you're a buyer -- especially if the next most important part of the home-buying equation, mortgage rates, are also low. As I write this, the average rate on a 30-year fixed mortgage is about 4.8%. So, where will they go from here?

 

That depends on whom you ask. I've scoured the Web for mortgage rate forecasts and have come up with several. But first, check out the following 90-second news story for my personal prediction:

What others are saying

One of the most often-quoted sources for mortgage rates is the Mortgage Bankers Association. Here's what they predicted for 2011 30-year fixed-rate loans (.pdf file) on Jan. 11:

  • First quarter: 5.2%.
  • Second quarter: 5.3%.
  • Third quarter: 5.4%.
  • Fourth quarter: 5.5%.

But before you put too much faith in this organization's ability to tell the future, check out the prediction they made in this press release on Oct. 26:

Fixed mortgage rates are expected to average about 4.4 percent in the fourth quarter of 2010, increase to 5.1 percent by the end of 2011, and head towards 5.7 percent in 2012.

How did they do at predicting 2010? Not so hot. Here's the prediction they made in late 2009 for 2010 mortgage rates:

… the average interest rate on a 30-year fixed-rate mortgage will be 5.3 in the first quarter of 2010, 5.5 percent in the second quarter and then 5.6 percent and 5.7 percent in the third and fourth quarters, respectively.

Rates averaged below 5% in 2010. But you can't berate the forecasters too much. Predicting things like mortgage rates means guessing the unknowable. Where mortgage rates will ultimately go depends on things like the pace of the economic recovery, the continuation of government actions like the Fed's quantitative easing strategy and a slew of other factors.

 

With that in mind, here are a few more predictions:

 

Greg McBride at Bankrate.com predicts higher rates, trending closer to 6% in the second half of the year:

"What I expect we'll see in the first part of 2011 is mortgage rates hopscotching back and forth over that 5 percent mark, but provided the economy continues to improve, we'll see mortgage rates trending higher as the year unfolds. I wouldn't be at all surprised to see mortgage rates above the 5.5 percent mark and the high 5's by the second half of 2011.

In this recent Bankrate article, mortgage guarantor Freddie Mac's chief economist, Frank Nothaft, had this to say:

The bottom in rates is behind us. That's not to say today's rates are high. They're not. Aside from what we experienced the last couple of months, these are the lowest rates we have seen since the 1950s.

He also said: "I do think they will be higher at the end of 2011 than (the end of) 2010."

And one more prediction from the same article, this time from LendingTree:

Cameron Findlay, chief economist at LendingTree, believes 30-year fixed rates will rise to about 5.25 percent in 2011. "We don't expect any significant rise from that point," Findlay adds.

Who's right? Only time will tell. But it does seem that if you mash all these predictions together, you've got rates rising gradually this year, but staying at historically attractive levels.

Keep in mind, however, that these rates are for those with the highest credit scores.

 

If you're considering buying a home this year, check out our mortgage search or MSN Money's to help you find the best mortgage deals in your area.

 

More from Money Talks News and MSN Money:

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