Good News for ARM Holders: Mortgage Rates Not Expected to Rise Dramatically
There’s good news for holders of adjustable-rate mortgages that fear an impending interest rate reset:
- Fixed mortgage rates aren’t expected to spike dramatically in the next few years, according to a Mortgage Bankers Association forecast.
Fixed-rate mortgages should remain at about 6.3% to 6.4% through the rest of the year. Rates are then expected to rise to about 6.7% by the end of 2007 and to about 6.8% by the end of 2008 - but that should be the highest they go.
“We expect long-term [mortgage rates] to remain low this year, helping to cushion the slowing in residential housing activity that has been underway for more than a year,” said Doug Duncan, MBA chief economist. Interest rates are expected to stay “quite low by historical standards,” he said.
In a question-and-answer session with reporters, Duncan also estimated that between $1.1 trillion and $1.5 trillion in adjustable-rate mortgages will be eligible for reset in 2007.
The MBA predicts that $600 billion to $700 billion of these will involve people that refinance home loans; while between $500 billion and $800 billion will actually reset with new interest rates.
Economists are concerned about the impact that added mortgage spending will have on consumer behavior and economic growth. Therefore, the lower mortgage rates stay, the better off consumers will be as they face those higher payments.
Future of the housing market:The MBA forecast also painted a picture of a “normalizing” home market. Existing-home sales should decrease by 9% in 2006 and go down another 8% in 2007, Duncan said. The number of new-home sales should decrease by 18% and also decline another 8% in 2007.
But after that, the decline is expected to reverse: The number of new- and existing-home sales should increase modestly in 2008.
Median price gains in existing homes are estimated to reach 2.5% in 2006, while median new-home price gains are expected to be about 1%, according to the MBA, down sharply from their recent double-digit pace. Appreciation rates should be similar in 2007 and could even strengthen in 2008.
Residential mortgage production is predicted to reach $2.46 trillion in 2006, down 19% from an estimated $3.03 trillion in 2005, but still the fifth-highest level on record.