Fed & Mortgage

Federal Reserve's next meeting is on next Tuesday and we can expect the Fed raising its target lending rate to 4.25% from 4%.

According to Freddie Mac's weekly report, the average mortgage rate rose this week after declines in the previous two weeks. This is possibly in anticipation of Fed's next move.
The 30-year fixed loan averaged 6.32% in the week through Thursday, up from last week's 6.26%. Last year at this time, the 30-year rate averaged 5.71%. The average for the 15-year fixed-rate mortgage this week was 5.87%, up from 5.81% last week and 5.14% a year ago.

Short-term ARMs (adjustable-rate mortgages) have been rising in lockstep with the Fed's 12 rate hikes since June 2004. Five-year Treasury-indexed hybrid ARMs averaged 5.78%. The one-year ARM averaged 5.16%. This is at more than a full percentage point above where it stood one year back. ARM was a main factor in fueling the real estate market that had a great run in recent years. With its rates increasing and approaching the Fixed-rate, we can expect declining activity in all sectors of real estate market -- home purchase, refinancing etc.

According to Freddie Mac economists, the house-price appreciation is returning closer to its historical average over the next few years, leaving behind the double-digit gains of recent years. National price appreciation will average just over 11% in 2005, matching 2004. It will grow by 8.3% in 2006 and slow to 7.6% in 2007.