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PMI Forecast Puts Long-Term Rates at 6% by Year-End

Mortgage interest rates for 30-year fixed loans are projected to hit 6.00 percent by the end of 2010, according to the latest ""Housing & Mortgage Market Review"":http://www.pmi-us.com/PDF/jan_10_pmi_hammr.html published by the ""PMI Group, Inc."":http://www.pmi-us.com


Long-term interest rates have generally headed higher since the end of November, probably in response to signs of economic recovery, PMI noted. The California-based company expects this trend to continue, with a notable increase coming in Q2, influenced largely by the Federal Reserve's withdrawal from the secondary mortgage market.

The central bank has said it will wind down its purchases of Fannie Mae and Freddie Mac debt and mortgage-backed securities (MBS) by the end of March â€" a program that has succeeded in pushing and holding mortgage interest rates at record lows for the most part of last year.

""If mortgage rates rise by too much or if the housing recovery appears to be going off track, the Fed could step back in to support the mortgage market through additional purchases of GSE MBS,"" PMI noted in its report.

Another government housing stimulus program â€" the federal homebuyer tax credit â€" is also expected to leave a significant mark on housing conditions. The first-time homebuyer tax credit pulled sales forward into the months before it expired in November, PMI explained. Even with


the extension and expansion of the credit, the company's report says it's likely that there will be a payback period from the original tax credit.

""As a result, we expect a decline in home sales over the next several months,"" PMI's economists wrote. ""With the new credit and continued expansion of the economy â€" especially as the job market begins to expand â€" home sales should begin to grow again within a few months.""

For 2009, PMI forecasts existing home sales to have risen by 5.1 percent, and by more than 27 percent on a fourth quarter-to-fourth quarter basis, reflecting a steady chain of improvement over the course of the year. New home sales, which have to compete with foreclosures, are projected to have declined by 23.3 percent in 2009.

Looking ahead, PMI says sales should climb more strongly in 2010, once the payback period from 2009's tax credit comes full circle. As the job market finally starts to improve and credit markets function better, existing sales should climb by 7.7 percent and new home sales by 35.5 percent, PMI said in its report.

Although more homebuyers are expected to enter the market, PMI says total mortgage originations will drop off significantly, led by a huge decline in refinancing as interest rates head higher. Overall, PMI projects mortgage originations to fall by about 13 percent to $1.70 trillion. Purchase originations should climb by 33 percent to $884 billion, but refinance activity is expected to plunge by 37 percent to $816 billion, bringing the refi share down to less than half of all originations. (In 2009, refinances consistently made up about 75 percent of mortgage applications.)

The continued oversupply of homes on the market still weighs on house prices, although the pickup in sales has tempered this, the company said. Following a projected decline in existing home prices of 12.7 percent for 2009, PMI says prices should fall by another 5.0 percent this spring. However, stronger sales and reduced inventory should allow prices to remain relatively flat over the course of 2010, the company concluded.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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