TBMA Sees Stable 6.8% Mortgage Rate

Wall Street economists are forecasting that the Federal Reserve Board will stop raising short-term interest rates by the end of the year and that the 30-year fixed mortgage rate will hit 6.8% in September and remain at that level for the next 12 months.Members of The Bond Market Association economic advisory committee say they expect the Fed to raise the federal funds rate to 5.25% at this week's Federal Open Market Committee meeting. They are forecasting one more 25-basis-point increase before year-end and a 25-bp rate reduction in early 2007. Meanwhile, new- and existing-home sales will drop by 8% to 7.7 million in 2006 from a record level of 8.4 million in 2005, according to the forecast. But with modest economic growth and steady mortgage rates, TBMA economists are predicting that home sales will decline by only 3% in 2007. The TBMA forecast also calls for moderate house price appreciation for the rest of this year. "Panelists did indicate that regional markets that have experienced the sharpest price appreciation in recent years are most likely to see some price correction, at least on an inflation-adjusted basis if not in nominal terms," TBMA said.