Mortgage Rates At Level That Could Stall Any Housing Recovery

Freddie Mac has announced a sharp increase in the 30-year fixed-mortgage rate. Information released by the agency says that rates moved to 5.29% for the week ending today, up from 4.91% a week ago.

A mortgage banking expert told Reuters, “Any additional rate increases will significantly hurt the home purchase and refinance markets, which will really hurt the economic recovery,” said Alan Rosenbaum, president of Guardhill Financial.

The housing market is still bedeviled by several factors that are not going away. The first is the mortgage default rate, which continues to be near historic highs. The second is that a large number of homeowners who have  had their monthly payments reset to lower levels are continuing to default. This is probably due to the fact that many home loans are so far underwater that mortgage holders cannot foresee a day when their houses will have any value beyond what they owe for them.

Another problems facing the housing market is that prime mortgages are beginning to reach high levels of default rates the way that subprime mortgages did two years ago. The supply of homes being taken back by banks is continuing to rise.

There continues to be a suspicion among potential home buyers that prices will still come down 10% to 15% in many markets. That group will not become buyers, even with low mortgage rates, while they still believe that there may be better bargains in 2010.

Douglas A. McIntyre