Rates rise at the end of the year

The trouble with the future is that it's so hard to predict. Almost a year ago, prominent housing economists issued their forecasts for mortgage rates and home sales, and they got some stuff wrong -- and a few things right.

Economists were pretty accurate about the movement of mortgage rates. They said they expected rates to move upward in 2007, but not by a lot. That is what happened, but it's not the whole story. Mortgage rates were higher at the end of this year than they were at the beginning, but only because they went up this week.

The benchmark 30-year, fixed-rate mortgage rose 10 basis points to 6.31 percent, according to the Bankrate.com 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 0.34 discount and origination points. One year ago, the mortgage index was 6.23 percent; four weeks ago, it was 6.17 percent.

The benchmark 15-year fixed-rate mortgage rose 7 basis points to 5.97 percent. The benchmark 5/1 adjustable-rate mortgage rose 10 basis points to 6.31 percent, and the 30-year jumbo rose 4 basis points, to 7.3 percent.

At the beginning of 2007, the benchmark rate on a 30-year fixed was 6.24 percent. It rose as high as 6.84 percent in the middle of June and bottomed out at an even 6 percent the first week of December. The 30-year fixed has risen rapidly in the three weeks since, partly because investors shifted from bonds to stocks and partly because Fannie Mae and Freddie Mac are imposing new fees on conforming mortgages to insure against further drops in house prices.

Bottom line: At the beginning of 2007, many economists predicted mortgage rates would be higher at the end of the year, and this week's rise makes them correct.

Expert predictions mixed

Doug Duncan, chief economist for the Mortgage Bankers Association, said in January he expected long-term rates to rise about 30 basis points in 2007. He made that forecast when the 30-year fixed was about 6.25 percent. Long-term rates were higher than 6.55 percent for one-quarter of the year, and they're higher now than they were then, so he was partly correct.

The economists at Freddie Mac made this prediction at the beginning of the year: "Low inflation is likely to keep long-term Treasury yields low, and in turn, keep 30-year fixed mortgage rates below 6.5 percent in 2007." Pretty close. In Bankrate's survey, the 30-year fixed was below 6.5 percent in 38 of 52 weeks.

Fannie Mae's economists were less specific. They predicted long-term rates would "remain relatively stable this year despite our projection of modest Fed easing, perhaps as the market looks ahead to 2008 as a year of economic rebound."

Ahead in 2008

With rates varying from 6 percent to 6.84 percent, it's a matter of opinion whether they were stable in 2007. As for people looking toward 2008 as "a year of economic rebound," that will be debated vigorously during the election year. The housing sector will continue to slide, while other parts of the economy might thrive. Other factoids about mortgage rates in Bankrate's weekly surveys this year:

-- Half of the time, the 30-year was higher than 6.32 percent in Bankrate's weekly survey, and half the time it was lower. That's another way of saying that the median rate was 6.32 percent.

-- The average rate in 2007 was 6.4 percent. The average rate in 2006 was 6.47 percent and in 2005, 5.93 percent.