Fed’s Actions Could Influence Lending Rates in 2012

Editor’s note: This story contains outdated information about interest rates and mortgage trends. For more current information, please visit our rate forecast page.

In December 2011, the Federal Reserve stated that it plans to keep its benchmark lending rate near zero at least through 2013. While mortgage rates aren’t tied directly to the Fed’s actions, they are certainly influenced by them. As a result of this announcement, most analysts are predicting that mortgage rates will remain low throughout all of 2012. How low? Well, they’ve been hovering around 4% for months (in the 30-year fixed category). At present, we have every reason to believe that this trend will continue for much, if not all, of 2012.

You’ll find more housing market predictions on this page.

The rest of this story is presented in its original form, first published in 2010. If you would like to access the most recent information on this website, please use the search tool provided at the top of the page.

Mortgage rate predictions are never written in stone, because nobody can truly predict the future (no matter how many titles or degrees they might have). But there are certain factors that may affect mortgage rates through the rest of 2010 and beyond. For instance, the federal reserve will stop buying so many mortgage-backed securities in March 2010. Many financial analysts agree that this move could contribute to rising interest rates.

Rate Predictions from Around the Web

Here are some other mortgage predictions for 2010 and beyond:

  • In an interview with MarketWatch, Greg McBride predicted that interest rates would rise by about half a point (from the current level of 5%, and after the Fed stops buying up securities).
  • “Still, all of the experts agree that mortgage rates will climb. Their projections are for a gradual run up to between 5.5% and 6% by December. Brinkman’s projection is a rise to 5.8%; Cutt’s is to 5.75%.” –CNN Money
  • “The consensus of almost all the analysts [in a CNBC forum] is that mortgage rates will rise next year … The forecast for next year’s mortgage rates is that by the end of the second quarter, 30 year fixed rate loans will average between 5.37% to 5.5%.  It is expected that by year end 2010, rates will be more in the 5.5% to 6% range.” –Shelby Bateson, loan officer
  • “If you told me by the end of 2010 a 30-year rate was at 6 percent, that sounds about right. I don’t think there’s any question rates are headed up.” –Mark Zandi from Moody’s
  • In December of 2010, the Mortgage Banker’s Association released its outlook for 2010. They predicted a continued rise in rates over the coming months, perhaps up to 5.7% by year’s end. –U.S. Housing News
  • An advisory committee for the American Bankers Association believes that rates will hit 5.5 percent by the second quarter of 2010. Of course, this prediction was from June 2009, so much has changed since then.
  • “We expect interest rates to be lowest in the early part of the year … with 30-year fixed-rate mortgages hanging around the 5% mark … rates will nudge closer to 6% than 5% for the final two quarters of 2010. –HSH.com
  • “The average rate on a 30-year, fixed-rate mortgage … could climb to 6 percent by the end of 2010, if not sooner, according to giant mortgage financier Freddie Mac.” –Washington Post

Taking an average of the predictions listed above (and others we found during our research), we come up with the following consensus: Mortgage rates will likely climb to around 5.75% by the end of 2010.

Putting Mortgage Predictions in Perspective

From a home-buying perspective, mortgage rates are only piece of the puzzle. Home prices are another major factor that should influence your decision making. In some cases, these two things can offset each other. For example, for the second and third quarter of 2010, home prices are expected to dip in many cities across the U.S. This is a direct result of housing inventories in general, and foreclosures in particular. When prices drop at the same time that mortgage rates are rising, a home buyer could still come out ahead in the long run.

The bottom line — you must factors in all of the variables when planning your purchase. Keep this in mind when reading about mortgage rate predictions for 2010 – 2011.

As a home buyer, you should also realize that you may or may not qualify for the best interest rates a lender has to offer. In order to get the lowest rates, you will probably need the following things in your favor:

  • A credit score of 750 or above (some say 740, others say 760)
  • A loan-to-value ratio of 80% or lower (making a down payment for the rest)
  • You might even have to pay a point at closing, to secure the best rate

We will bring you additional mortgage rate predictions for 2010 as they become available.