The Massachusetts housing market may be facing a new challenge next year: higher mortgage rates that could hobble the fragile housing recovery now under way.
Morgan Stanley and Freddie Mac have issued warnings about rising mortgage interest rates, which are now hovering in the 5 percent range for 30-year fixed-rate loans.
Freddie Mac, the government-controlled mortgage giant, recently warned that rates could hit 6 percent in 2010, while a fixed-income economist at Morgan Stanley said rates could spike as high as 8 percent, thanks to heavy government borrowing that could drive up rates for Treasuries.
Karl “Chip” Case, a local housing economist, said he wouldn’t be surprised to see rates increase, if only because the Federal Reserve’s short-term rates are now at zero percent – and there’s nowhere else to go but up.
“It could stall the housing recovery,” Case said of any significant boost in mortgage rates. “It could drive down sales.”
Real estate agents are also worried.
“The market is totally fragile,” said Jonathan Bowen, owner of Jonathan Bowen Real Estate in Hyde Park. “The demand for housing just isn’t there with higher interest rates.”
Today’s rates are historically low, so a bump up to higher levels wouldn’t be unusual.
But the housing market – which many say is virtually on government-backed life support, due to tax credits and low interest rates driven by the Fed – is still considered very weak after stabilizing somewhat in the second half of 2009.
In Massachusetts, single-family home sales zoomed up by 60 percent last month, though prices still haven’t seen a rebound, after falling by about 20 percent over the past year.
“We’re just seeing the market turn around,” said Norm O’Grady, a real estate broker with Prime Realty Group in Brighton. “A jump in mortgage rates will hurt.”
Besides the likely end of the $8,000 federal tax credit for first-time homebuyers in the spring, the Fed is expected to pull back from buying mortgage securities in March, increasing anxiety that the housing market is vulnerable to downward pressures.
Article URL: http://www.bostonherald.com/business/real_estate/view.bg?articleid=1221750
