October 19th, 2009

What Can We Expect From Mortgage Rates in Two Months?



Unfortunately we can’t predict the future, but we can sure try and forecast it. Six times a year, HSH releases a two-month forecast for mortgage rates in which we rely on our 30 years of industry experience to anticipate where and how the markets will move.

Rates fell further than we thought over the last two months. While we accurately predicted the gap of the spread between high and low, borrowers who accessed credit were thankful we overbid:

For our last forecast, we believed that our Fixed-Rate Mortgage Indicator ((FRMI)) — an average inclusive of conforming, jumbo and “expanded conforming” loans — would wander in a range between 5.93% and 5.5% for the period. While our choice of gap was pretty close, it occurred in a much lower interest rate range, as that benchmark rate walked between 5.73% and 5.34% over the nine-week span.

More Questions Than Answers

There are several factors that make forecasting in this “abnormal” (see this morning’s post) economic climate even more of an art than a science:

Amid an improving but uncertain economic period, forecasting is even more of a humbling art than usual. Complicating this particular period is the still-significant influence of government policies into the credit and housing markets. Precisely how will the government extricate itself from private markets, and at what speed? How wide-ranging will be the effects of expiries and discontinuations of certain supports, and what are their influences on the economy as a whole? Are the private markets ready to assume a more substantial role? How much influence does the specter of a potential cascade of new regulations and regulators to govern those markets influence the direction we move in? Frankly, there are far more questions than answers, and that doesn’t even include any about the prospects for economic recovery. Some of these questions and issues will likely become recurring themes in the next few Two-Month Forecasts, too.

Our Forecast

To be blunt, rates have little place to go but up. That being said, we don’t think there will be any “serious increases” in the near future either:

With rates at multi-year or near historic “all-time” lows, it’s unreasonable to expect that they have considerable space to decline, especially in the face of a modestly improving economic climate. If the near decimation of markets earlier this spring coupled with some truly bleak outlooks couldn’t push them much lower, this climate is unlikely to, either. However, improving risk fundamentals and investor appetites, muted economic growth and low prospects for inflation should serve to keep a lid on any serious increases, too. The bleakness of Spring drove rates down; the euphoria of Summer (and inflation worries) drove them back up. The Autumn seems to have a sense of reality about it, and an improving sense of optimism about tomorrow’s economic prospects.

Click here to read our entire two-month forecast to see exactly where we are predicting mortgage rates will fluctuate over the next two months.

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About the HSH Blog's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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