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Will mortgage rates stay low in 2012?

January 18, 2012

| Money Rates Columnist

In a year of volatility for both politics and the economy, mortgage rates held a steady course in 2011, staying near or below historic lows throughout the year. The tenuous economy pushed rates even lower in later months, culminating in sub-4 percent December figures for 30-year fixed-rate loans.

But for buyers and sellers alike, the questions remains: Will 2012 bring more of the same?

Mortgage rate predictions

Whether historically low mortgage rates will continue throughout 2012 depends in part on the pace of the economic recovery. Some economists believe that mortgage rates will stay under 5 percent for at least the beginning of the year in spite of some recent signs of economic improvement.

"Fixed mortgage rates started the year a little lower this week, just as recent data reports indicate the housing market and manufacturing industry are showing signs of improvement," said Frank Nothaft, vice president and chief economist of Freddie Mac, on January 5.

Nothaft also said that pending existing home sales in November rose 7.3 percent to its strongest pace since April 2010 and that construction spending jumped 1.2 percent in November.

However, HSH.com notes that continued high unemployment figures may continue to put downward pressure on the housing and mortgage markets. Its forecast anticipates that mortgage rates through mid-February will average 4.00 to 4.30 percent for 30-year fixed-rate loans.

"Without considerably stronger job growth, it will be hard to get more potential buyers into the market," the lastest HSH.com forecast said. "For their part, the Fed's commitment to low and steady mortgage rates is helping, and both new and existing home sales have been on a gradual upturn since about mid-year 2011."

In the 2012 Kiplinger economic forecast, they predict rates will average about 4 percent for a 30-year fixed-rate loan, but will move toward 5 percent by 2013.

Kiplinger also said that while the Fed's Operation Twist is designed to hold down long-term interest rates, it may not be enough to keep rates from edging up slightly as 2012 progresses.

Anticipating the bottom

While it's difficult to know when mortgage rates will finally begin to rise, there are tools that can help you plan your next home purchase or refinance.

If you are considering either of these transactions, a mortgage calculator should be your best friend. Not only can it give you an idea of the affordability of your mortgage payments, but you can also use it to compare the merits of varying loan types and terms.

Beyond this, it should also pay to keep a close eye on the latest interest rates. While you won't officially know what the bottom of the market was until it has passed, watching the latest figures can give you the information needed to time your moves wisely.

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