How Low Can Mortgage Rates Go...

Its interesting as I look back almost a year ago... we wondered how low the mortgage rate environment could go. A year ago I remember following a CNBC article that quoted a market expert who said the 30 year mortgage rate would fall to nearly 4 percent!!! Its safe to say that we didn't hit that historic mark on the 30 year rate but as we dropped under 5 percent there were days when we wondered.

History books will go back and reflect on this time period and wonder whether the monetary policies by the Federal Reserve were helpful. The policy used by the Fed was commonly called monetary or quantitative easing and involved their buying of mortgage backed assets in large amounts to keep pushing down the rates. In turn, by depressing rates you attempt to spur economic activity in a housing market that was on its death bed. The overall goal is and was to put a floor on the troublesome housing market and now it appears its working. Home prices now appear to be stabilizing but a few things appear to be forming like clouds that will predict the direction of rates.

The first is the admission by the Fed that they will stop by mortgaged back assets by the end of March. This will begin to have an immediate impact on rates. I would anticipate that rate inch up from there and they will then move up further on the potential that the Fed may raise interest rates by the end of the year.

So look for rates to move up in April, possibly hampering the stabilization seen recently in housing. But you wonder if the government has already anticipated that. The timing of newly communicated program look to spur one last effort in demand before rates begin to creep up. Here is a quick summary of programs (new and improved):

- Home Affordable Mortgage Program - new requirements to have documents before you get the modifications

- The FHA allows investors who "FLIP" homes to buy FHA homes in a bid to offer remodeled homes to first time home buyers. With pricing guidelines included this should keep prices affordable

- Fannie Mae is offering new incentives to home buyers. 3.5% in assistance can be used for closing costs or brand new appliances and only for owner occupants.