An unpleasant scenario is starting to emerge regarding the mortgage rate picture for 2010. All my lender friends are telling me that the Fed is going to be winding down their purchase of mortgage-backed securities and will be all finished with the buying by the end of March 2010. Ouch. The experts don't see the Fed extending their buying spree so, although we aren't exactly sure what that's going to mean for mortgage rates, logic would seem to dictate that when you suddenly get dramatically decreased demand prices will have to drop in order for supply and demand to get back into equilibrium. As you may know, when it comes to mortgage-backed securities rates and prices move in opposite directions. So when demand for mortgage-backed securities diminishes and the price of mortgage-backed securities goes down, the yield automatically goes up. And it is that yield on mortgaged-backed securities that drives the market for mortgage interest rates. Double ouch.

Although no one knows for sure what's going to happen, the consensus among the lenders in my network seems to be that they would not be at all surprised to see rates climb back to between 6.0% - 6.5%. That is exactly where they were prior to December 2008 when the Fed first announced it would start buying mortgaged-backed securities and rates suddenly took a dive. Still excellent by historical standards (after all, rates were in the double-digits in the early 1980's) but much higher than the sub 5.0% rates we're typically seeing today. I suggest that if you are a potential buyer of real estate right now you'll want to seriously think about getting into a contract and locking your rate well before the end of March 2010 to avoid the possibility of missing out on the current great rate picture. One thing everyone seems to be pretty sure about is that rates will not go down when the Fed stops buying mortgage-backed securities. To think otherwise is simply unrealistic. If you are a first-time homebuyer or have owned a home for a few years and are a trade-up buyer or investor, you have even more reason to sort out what you're buying before the current tax credits expire. Again, no one knows for sure but it would be crazy to assume that Congress is going to pass another extension.

To search Madison real estate listings or for information about obtaining a buyer's representative who can advise you on pricing and negotiate on your behalf, please contact Madison real estate broker and Lake & City Homes Realty owner Jolenta Averill at 608.628.9701 or visit our flagship Madison real estate website. Posted by Jolenta Averill on
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