Mortgage Trends This Week: Jan. 4

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It’s a new year and a new landscape for mortgage rates, as most signs point to a 2010 that will see higher interest rates, as the economy improves and the Federal Reserve lifts rates to balance economic risk.

For the last week of 2009, interest rates were once again on the upswing, as measured by the BankingMyWay Weekly Mortgage Rate Tracker.

For the week, 15-year rates are up to 4.76% from 4.65%; while 30-year rates are up to 5.3% from 5.23%.

One-year adjustable-rate mortgages once again are fluctuating wildly — they’re down to 3.9% from 4.94% for the week. Three-year ARMs inched up to 4.57% from 4.54%. At the same time, five-year ARMs are climbing upward to 4.54% from 4.45%.

Mortgage rate watchers are surely buzzing over Federal Reserve Chairman Ben Bernanke’s comments this weekend to the American Economic Association in Atlanta. He told the audience that “all efforts should be made to strengthen our regulatory system to prevent a recurrence of the crisis, and to cushion the effects if another crisis occurs.

"However, if adequate reforms are not made, or if they are made but prove insufficient to prevent dangerous buildups of financial risks, we must remain open to using monetary policy as a supplementary tool.”

More tellingly, Bernanke said the Federal Reserve would raise interest rates to prevent another economic crisis.

Even with rising rates looming, mortgage rates start the decade significantly lower than they were ten years ago. In January 2000, the average 30-year mortgage rate was 8.6%. As the BankingMyWay rate tracker shows, we’re at 5.3% today, at the cusp of the new decade.

How long rates will stay this low is a fair question. Most economists expect mortgage rates to rise once the Federal Reserve halts its $1.25 trillion security buyback program. That program is set to end in March, according to the Federal Reserve. Economists say that the buyback program artificially kept mortgage rates down, by creating an ample money supply for mortgage securities at a time when demand from the private sector was low.

Another indicator that rates may be heading up is the latest news from the housing sector. According to Federal Housing Finance Agency, U.S. home prices are up 0.6% in its latest monthly reading, and are up four out of the last six months. The widely-cited Case-Schiller Index also points to a recent uptick in housing prices.

If housing prices really are on the rise, that’s a big blinking sign that the economy is getting better. News of that kind should get the attention of economic policy makers, most notable the Federal Reserve, who in turn will hike interest rates to stave off inflation.

That’s the picture we’re looking at as we embark on a brand new decade. For the short term, though, getting a good mortgage deal is still viable. To accelerate that process, get the lowest rates possible by shopping online at BankingMyWay.com.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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