Current mortgage rates are near historic lows, there’s little room for them to go any lower, but plenty of room and good reasons to go higher. IMHO, 12 months from now, rates will probably be in 6-8% range. Rates below 5.5% are highly unlikely, rates above 8% and possibly as high as 10-12% could happen if things go too wrong.
Mortgage rates are basically 10-year treasury rates plus premium that represents increased risk of default by homeowner (vs. risk of default by the federal government, which is zero).
Both components have to go up in the long run. 10-year treasury rates are irrationally low. The only thing that keeps them down is continued intervention by China and Japan. When these two players decide to stop their game, dollar will crash and treasuries will go through the roof. However, they’ve been at it for 10+ years and I wouldn’t exclude the possibility that the game will continue for another 10. I certainly wouldn’t bet on it happening within 6-12 months. In the mean time treasury rates may climb gradually in response to the fed’s easing.
Prime and especially jumbo mortgage premiums will go up as the house bubble is unraveling, when prices start falling in earnest and foreclosures move beyond subprime.
