Will Low Mortgage Rates Last Much Longer?

Mortgage rates have been hovering around five percent for about two years. But analysts are saying that these rates are not going to be this low forever. In fact, they expect higher rates before the end of 2011. Here are three plausible reasons why mortgage rates could go up significantly before we say hello to 2012.

1. History is a good indicator. If you look at the history of mortgage rates, you will see that today’s rates are not very normal. And the fact that they have stayed this low for so long is even more abnormal form a historical perspective. Mortgage rates have been monitored for 479 months and the rates have been below 5 percent for only 17 of those months. That’s less than 4 percent of the time. Over the 479 months, mortgage rates have an average of about 8.88 percent.

2. Fannie Mae and Freddie Mac as we know them could come to an end. These two government entities have been the leaders in securing mortgage written by private mortgage lenders. But as we’ve seen in the last few years, the way things have been working really have not been working at all. Before the subprime mortgage occurred, Freddie and Fannie were securing loans written that never should have been written at all. As these two institutions begin to wind down, banks are going to be stingier with the loans that they give out. That means higher mortgage rates and tighter credit regulations for those who want to buy a home.

3. Inflation is on the rise. Two years ago in April, the rate of inflation was actually negative. That means inflation had essentially gone down rather than increased. That’s when mortgage rates went below five percent. But today, inflation is over 2 percent. And it is increasing. One of these – mortgage rates or inflation – has to give and it probably won’t be inflation.

Although mortgage rates are probably going to increase in the upcoming year, you shouldn’t jump into the housing market out of fear. Many analysts believe that higher mortgage rates could bring still lower prices, even if the economy is in recovery. However, if you have been planning on purchasing a home, you might shop around before the rates go up.