MBA: Fed Action Unlikely to Lower Mortgage Rates

By:: Peter King | October 27, 2010

Don’t expect to see any further declines in mortgage rates, despite whatever steps the Federal Reserve may take to boost lending and the economy.

That’s the prediction from the Mortgage Bankers Association (MBA), which released its most recent mortgage and economic forecast on Tuesday. Although there have been growing signals that the Fed will likely take steps to boost the money supply at next week’s meeting of its Open Markets Committee, the MBA expects the reaction from mortgage markets will likely be muted.

“At this point, we think the most likely scenario is that the Fed will purchase additional Treasury securities, but that the market has already priced these anticipated actions into today’s rates,” said Jay Brinkmann, MBA chief economist. “In other words, absent some blockbuster post-election announcement from the Fed on November 3rd, we do not expect to see a further decline in rates.”

Although no further declines are forecast, the MBA predicts 30-year mortgage rates will remain low through the end of the year, averaging about 4.4 percent for the fourth quarter of 2010, then increase to 5.1 percent by the end of 2011 and trend up toward 5.7 percent in 2012.

As a result, the MBA expects mortgage refinancing will decline significantly next year, although home purchase mortgages are expected to increase. The MBA sees modest increases in home sales and stabilizing home prices, although it predicts the housing market will likely remain stagnant until 2012.

The MBA forecast calls for existing home sales to rise a little less than 2 percent in 2011, before taking off with a 16 percent gain in 2012. New home sales are expected to post a more dramatic improvement, due in part to how far they’ve fallen to date, with a 20 percent increase expected in 2011, increasing to 40 percent in 2012 as the economy recovers.

Despite the boost early in the year from the homebuyer tax credit, home sales are predicted to be down this year compared to 2009, with existing home sales forecast to be about 8 percent down and new home sales down 13 percent for all of 2010.

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