Mortgage rates climb this week

Mortgage rates rose for the third straight week in Bankrate's weekly survey.

The benchmark 30-year, fixed-rate mortgage jumped 9 basis points, to 5.13 percent, according to the Bankrate.com's national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.42 discount and origination points. One year ago, the mortgage index was 5.43 percent; four weeks ago, it was 5.06 percent.

The benchmark 15-year, fixed-rate mortgage climbed 6 basis points, to 4.53 percent. The 5/1 adjustable-rate mortgage rose 5 basis points, to 4.6 percent.

As U.S. home sales rebound, hopes have grown that 2009 will be remembered as the year residential real estate finally bottomed and began to heal. But while some economists predict rising home values over the next 12 months, others are pessimistic.

"I think 2010 will be a challenging year," said Bob Walters, chief economist at Quicken Loans.

Walters is not alone in his glum forecast. In October, the financial information and analysis firm Fiserv predicted housing prices will plunge 11.3 percent nationwide by the middle of next year.

Last week, Moody's Economy.com issued a forecast calling for a 5 percent to 10 percent fall in home prices nationwide during 2010, with just one of 100 markets analyzed -- Pittsburgh -- expected to rise. Other economists are making similarly dire predictions.

"We continue to forecast a 5 (percent) to 7 percent decline in national average home prices," said Cameron Findlay, chief economist at LendingTree.com.

Several factors could pressure prices in 2010. Economists and other housing experts are especially worried about the impact of the so-called "shadow inventory" of homes lurking on the sidelines. The shadow inventory includes foreclosures and other distressed properties not yet listed for sale. It also encompasses homes that remain off the market simply because sellers are waiting for conditions to improve.

"You're going to see the next wave of foreclosures hit the market, and that shadow inventory is also going to come onto the market," he said. "So, we're not out of the woods yet."

Continued high unemployment and the spring expiration of the federal homebuyer tax credit could dampen demand for housing later in the year, pushing prices even lower.

Mortgage rates also may creep higher during 2010. In March, the Federal Reserve is scheduled to halt its $1.25 trillion campaign of purchasing mortgage-backed securities. That effort, which began in late 2008, is widely credited with keeping mortgage rates lower than they otherwise would be.

"Had they not done this, mortgage rates would probably be a half to three-quarters higher than they are today," Walters said.

Findlay forecasts mortgage rates to climb to 5.86 percent by the end of 2010, but he adds that "we will still be sub-6 percent, which historically remains very attractive."

As the calendar turns to a new year, buyers will hold all the cards, Walters said. Although 2010 purchasers may endure short-term home value declines, today's properties remain a good buy thanks to rock-bottom pricing, low mortgage rates and special tax incentives, he said.

"Buyers have complete and total command of the transaction right now," he said. "They get to dictate terms, they get to dictate price. They control everything."

Findlay also said today's low prices remain a powerful incentive for shoppers.

"Home affordability remains very high," he said.

The news is less sunny for today's sellers, many of whom are in for a rude awakening, Walters said.

"Most people are shocked when they come to terms with what their house is really worth -- not what it appraised for or what they thought it was worth a year ago but what it's really, really, really worth," Walters said.

Sellers looking to trade up to a bigger home may discover an upside to potential 2010 price declines. Although sellers may take a financial hit on their current property, they often can make up that loss -- and more -- if they pay a bargain price for their new home.

"They're going to get taken to the woodshed on the sell, but they're going to take somebody else to the woodshed on the buy," Walters said.

However, Walters has few consoling words for homeowners who need to sell but are not looking to trade up.

"I guess I'd tell them ... to take a deep, deep breath and realize it's going to be painful," he said.