Freddie Chief Economist Sees Low Rates Continuing Through 2011

Mortgage rates will remain low, buyer affordability will remain high, home prices will continue to stabilize and overall lending volumes will drop next year, Freddie Mac Chief Economist Frank Nothaft says.

‘With fiscal policy supporting aggregate demand for goods and services and an accommodative monetary policy providing low interest rates and ample liquidity to capital markets, the economic recovery should accelerate gradually over the year, with the second half of 2011 exhibiting more growth and job creation than the early part of the year,’ Nothaft wrote in a blog published Monday.

With the Federal Reserve expected to keep the federal funds target rate low throughout 2011, 30-year fixed rates will remain below 5%, and initial rates on 5/1 hybrid adjustable-rate mortgages will be below 4%, he wrote.

While acknowledging that areas with high concentrations of real estate owned and for-sale properties will continue to see home-price weakness, ‘price indexes for the U.S. as a whole are likely close to bottoming out in the first half of 2011,’ Nothaft wrote.

A drop-off in refinance activity will lead to fewer originations, he adds. The expiration of Home Affordable Refinance Program next June, combined with gradually rising fixed rates and a generally low appetite for refinancing, will be the main reasons for lower activity.

‘The expected decline in refinance originations more than offsets the potential pickup in purchase-money originations, leading to lower total lending in 2011,’ he wrote.

Nothaft additionally predicts delinquency levels will decrease next year.

‘Based on the last several business cycles, the share of loans 90 or more days delinquent or in foreclosure proceedingsâ�¦generally crests within a year of the start of the recovery in payroll employment, and this economic recovery appears to fit within that pattern,’ he wrote. ‘Payrolls began to rise last January, and by the spring, the seriously delinquent rate had begun to decline.’

SOURCE: Freddie Mac


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