Will rates stay low?
by Carla Hill
While the Federal Reserve has promised to keep rates “low” until 2013, it is clear to many experts that the current historical lows we are experiencing will not last.
According to the latest projections from the National Association of Realtors® (NAR), interest rates should gradually rise out of historic lows as we move through 2012.
The NAR reports that current surveys reflect the tight credit conditions. They report that recent buyers are staying well within their means, with higher incomes and higher downpayments.
Richard Peach, Senior Vice President at the Federal Reserve Board of New York, who said the economy is under-performing, reports, “Nearly two-and-a-half years since the end of ‘the great recession,’ the economy continues to operate well below its potential. Among the significant structural impediments are the legacy of the housing boom and bust, and fiscal contrition at the state and local level.”
Lawrence Yun, chief economist of the National Association of Realtors®, said home sales should be stronger. “Tight mortgage credit conditions have been holding back home buyers all year, and consumer confidence has been shaky recently,” he said. “Nonetheless, there is a sizable pent-up demand based on population growth, employment levels and a doubling-up phenomenon that can’t continue indefinitely. This demand could quickly stimulate the market when conditions improve.”
It is this improving jobs markets that many analysts are waiting for. Yun projects the GDP will grow 1.8 percent this year and 2.2 percent in 2012. The unemployment rate should decline, albeit modestly, to around 8.7 percent by the end of 2012.
Around this same time, experts expect that “mortgage interest rates should gradually rise from recent record lows and reach 4.5 percent by the middle of 2012.”
This is still an incredibly low rate and many experts feel that housing market, while still struggling, will improve throughout next year and after. In fact, the NAR expects new home sales to reach 372,000 next year. Existing home sales could fare just as well, rising 4 to 5 percent in 2012.
“Housing affordability conditions, based on the relationship between median home prices, mortgage interest rates, and median family income, have been at a record high this year,” Yun said. “Very favorable affordability conditions will dominate next year as well, which will probably be the second best year on record dating back to 1970. Our hope is that credit restrictions will ease and allow more home buyers to take advantage of current opportunities.”
The bottom line is that the housing market should improve over the next year and along with that improvement will come higher interest rates.