Mortgage rates will steadily rise in 2011, according to Freddie Mac's chief economist Frank Nothaft, and refinancing activity will slow as the year progresses.
"While some rise in fixed-rates is expected, 30-year fixed rates are likely to remain below 5% through the year and initial rates on 5/1 hybrid ARMs are likely to remain below 4% in 2011," Nothaft says in an article posted on the GSE's homepage.
He expects a pickup in home sales next year as refinancings "dwindle" over the course of the year.
Refinancings have comprised over 70% of Freddie's and Fannie Mae's loan purchases during the first nine months of this year. A significant drop in refinancings could reduce the GSEs' market share relative to the Federal Housing Administration, which has guaranteed more purchase mortgages than Fannie and Freddie combined so far this year.
Freddie's chief economist stresses that many borrowers have already refinanced at historically low rates or are in the midst of refinancing. And rising fixed rates will reduce the incentive for others to refinance.
He also noted that the GSE Home Affordable Refinancing Program is scheduled to expire on June 30 -- "further dampening second half refinancing volume."
HARP allows borrowers with high LTV GSE loans to refinance without purchasing new mortgage insurance policies.
