Frank Nothaft
Frank Nothaft
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As the economy continues to show signs that the recession is ending, the housing market continues to expand thanks, in large part, to current low mortgage rates. And as long as inflation is not an issue in the economy, lending rates should remain around 7 percent.
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Current record breaking low mortgage rates are keeping demand for housing strong, even as the overall economy stumbles sluggishly into the first part of the new year.
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Currently the market is focusing on an anticipated economic recovery within the next six months. That focus put some upward pressure on mortgage rates this week, causing them to rise. There remains good volatility though, due to market speculation over exactly when and how strong the rebound will be.
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There is a slight chance the Federal Reserve Board will raise rates when it meets later this month, but with the current labor market and slowing consumer spending, it is more likely that it will take no action until August at the earliest. As a result, short-term interest rates, such as the one-year adjustable-rate mortgage, drifted further down this week.
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That said, January housing starts were the highest in over 20 years, and that is based on higher rates than we are currently experiencing, ... All in all, the little run-up in rates that occurred this week will not be enough to cause a significant slowdown in current housing market activity.
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Over the last couple of years, we've seen many markets with strong home value appreciation. They're up at a considerable pace in many markets across the country, particularly from New England all the way down to Washington, D.C., ... Home values are up in D.C., for example, by over 10 percent over the past year. That means families have built up home equity.
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Long-term mortgage rates will more than likely rise over the next few months, albeit modestly compared to shorter-term rates.
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With productivity up and inflationary pressures muted, the Federal Reserve Board elected this week not to change a key short-term interest rate. Moreover, most other economic data releases, such as unemployment and manufacturing, painted a slightly negative picture for future economic growth. These factors combined to keep mortgage rates stable.
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Today's annual average mortgage rates are below even that projection thanks to the spring 'soft-patch' in economic growth.
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With the unemployment rate at a low of 4.3 percent and mortgage rates remaining at present affordable levels, we expect the housing market to continue to be strong into the coming months.
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For the typical family, home equity accounts for the bulk of their wealth.
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With mortgage rates low and consumer confidence high, Freddie Mac economists expect the housing market to remain strong in the months ahead.
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Bond yields have been creeping up on an almost daily basis since the beginning of October, pushing mortgage rates up as they go, ... Inflation remains low, however, and we expect that to continue into 2004 and beyond. And as long as it does, we won't see mortgage rates rising very dramatically.
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Financial markets are feeling more confident that the Fed will not raise rates any time soon. Add to that the fact that recent economic data shows core inflation is less than the market expects, and we see mortgage rates drop once again.