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Economic worries have led major economists to slash their long-term
interest rate predictions.
Variable-Rate Mortgage Forecast
Big bank economists, on average, expect a 207 basis point increase in
the overnight rate over the next 18 months. Their
outlooks, if accurate, imply a 4.50% prime rate by December 31, 2011. Prime rate is currently 2.50%, and expected to
increase 1/4 point on July 20.
Based on a 65 basis point average discount from prime, this suggests
5-year variable rates in the 3.85% range by year-end 2011. They’re
around 1.90% today, give or take 0.10%.
Fixed-Rate Mortgage Forecast
Banks foresee 5-year bond yields climbing 106 basis points in the same
18-month timeframe. That would put the 5-year yield at 3.59% by the end of next year.
Assuming a typical 120 basis point spread above yields, this suggests deep-discounted
5-year fixed rates could rise to roughly 4.79% by year-end 2011.
Things To Note: These forecasts are made by the
banks and are subject to frequent change. This data is provided only for
general interest. Always discuss your needs and risk tolerance with a
mortgage professional before acting on any information you read online.
History has shown that it’s near impossible to accurately predict
interest rates. l
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