San Diego Real Estate News –
Well, Groundhog day passed us by, but clearly there are other prognosticators out there who once again want to take a shot at figuring out if the real estate climate in 2010 will be hot or cold.
As I continue to indicate, real estate is local, and so estimating prices from region to region are problematic. Mortgage rates, however, generally follow a distinctive pattern. Read the article below by the National Association of Realtors, and make your own decisions.
April 12, 2010
By Lawrence Yun, Chief Economist
* NAR’s monthly official forecast as of April 5th
* GDP 2010 Q1: +2.5%
* GDP 2010 Q2: +1.8%
* GDP 2010 Q3: +2.3%
* Unemployment rate by the year-end 2010: 9.9%
* Average 30-year fixed mortgage rate by the year-end 2010: 5.7%
What does today’s data mean for REALTORS® and consumers?
* The U.S. government’s borrowing rates shot up the past two weeks. That means borrowing rates for nearly everything will also rise.
* The only borrowing rates that might fall are for commercial real estate and jumbo residential mortgages.
10-year Treasury Yield and Mortgage Rates
* The 10-year Treasury yield has risen to about 3.9 percent in recent days. It had averaged 3.3 percent in 2009, and was at around 3.7 percent in the first quarter of this year.
* The reason for the rise in 10-year Treasury could be from investors’ belief in economic recovery and a shift away from risk-free assets (as in Treasury). Another reason is due to a very high budget deficit. The government can only finance such large loans by offering higher rates to investors.
* The 30-year mortgage rate is priced off the 10-year Treasury. Typically the spread is about 150 basis points (or 1.5 percentage points); this means that if the Treasury is 3.9 percent, then the average mortgage rate will be higher by 1.5 percentage points to 5.4 percent.
* By year’s end, the Treasury yield is expected to rise to 4.2 percent according to the Blue Chip Consensus Forecast. That would mean that the average mortgage rate on FHA and conventional loans will be 5.7 percent by the end of the year, assuming normal financial market patterns.
* Because of the lingering effects of the financial market crisis, non-conventional and non-government backed mortgages of jumbo and commercial real estate had been largely frozen. But as the financial market exhibits clear signs of stabilization and as banks continue to build up their capital buffer, it is only a matter of time before lenders start lending to non-government backed sectors. So the underwriting standards for jumbo and commercial real estate mortgages will become less stringent over time.
“Copyright National Association of REALTORS®, Reprinted with permission.”