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Home Mortgage Preparation :: Mortgage Rate Forecast
Mortgage Rate Forecast:
A Bleak Forecast for Mortgage Rate Watchers
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The mortgage rate forecast is bleak as the crisis that began in the subprime market is leaking into the traditional mortgage market.
The economy is uncertain, rates are inching up and homeowners are wondering what's going to happen next? Will mortgages be worth more than homes? What can American homeowners expect?
For the answers to these questions and more, keep reading.
Princeton economist Paul Krugman predicted that by the end of 2008, 20 million Americans will have mortgages that are worth more than their homes, also known as negative equity. So, what happens then?
When a homeowner is having trouble with their mortgage payments, but they have positive equity, they can always sell or refinance to make ends meet. However, when a homeowner has negative equity, it may be more advantageous to simply walk away from a foreclosure. That's major losses for homeowners, lenders and the economy as a whole.
Will home prices continue falling and if so, how far?
The best measurement is the ratio of home prices to average rental rates in an area. For example, in Atlanta or Houston, home prices have remained fairly steady with rents and the decline in housing prices has been small. However, in areas like Los Angeles or Miami, there have been declines as high as 50%.
Are low housing prices leading to high mortgage rates and what is the mortgage rate forecast?
Yes, as housing prices fall, so does the demand for housing. As housing prices fall, lenders will tighten their belts and restrict their lending requirements, drive up mortgage rates and then, essentially, make mortgages unavailable to some. This, in turn, causes home prices to fall further. Unfortunately, it's a circle that's hard to break.
But, if Federal interest rates are being cut, why are mortgage rates going up?
Overall, individual borrowing costs are on the rise and Federal interest rate cuts simply aren't trickling down to the average, home-buying consumer. In fact, initial Federal interest rate cuts may have been the cause of the first real estate bubble.
So, are interest rates going to go up?
If you're looking for a mortgage rate forecast, then you should know that borrowing costs are going to go up in the short term. As the economy suffers and lenders become more conservative, interest rates can only go higher.
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Home-Mortgage-Preparation.com :: Mortgage Rate Forecast