Two weeks into the new year and the average rate for a 30 Year Fixed Conventional Mortgage is at 5.06% as reported by Freddie Mac.  That’s lower than the previous two weeks but nowhere near the record lows we saw in 2009 when the average got as low as 4.71%.  So the big question is where are mortgage rates headed in the upcoing year?  Should we expect to see more rates in the 4′s or are we headed back to the 6′s?  There are many signs that point to the 4′s being a thing of the past now that we’re back above that critical 5% mark. 

So what are the things that will influence where rates are in 2010?  One of the main reasons why mortgage rates dropped to these new lows last year was the Federal Reserve started buying mortgage backed securities providing a market for them that wasn’t driven by private investors and banks.  The Fed’s purchase program is slated to end in March 2010 as it reaches it’s purchase total of $1.25 trillion.  After that we’ll be back to a mortgage rate market that is driven by private investors who will probably want higher interest yields for their investment. 

As the economy starts to improve and investors move money into the stock market, mortgage rates will have to push higher in order to attract investment in mortgage backed securities.   We’ll start to see an increased demand for borrowing across the business spectrum and it will drive interest rates for all loans upwards.  With the Fed program ending on April 1st and and the spring buying season ramping up shortly thereafter it’s likely we’ll see rates in the mid to upper 5′s by the summer .  Expect that in 2010 we’ll have rates hovering closer to 6% rather than 5% like we saw in 2009.    In my next blog post I’ll cover some tips for first time home buyers when getting setup and qualified for their first home loan.

Michael Pollock is an Accredited Buyers Representative, member of the Seattle King County Association of Realtors and Licensed Loan Originator in Washington.  He also works with clients in the Tacoma/Pierce County area – visit us at www.tacomapowersearch.com