Mortgage Q&A: Rate rise unlikely, but still …

A recent survey of leading economists paints a bleak picture for the American economy in the months ahead. The survey compiles predictions and forecasts of leading economists in the academic, private and corporate sectors. Here’s what they think:

• Economic growth for the next 12 months will drop below 3 percent. In contrast, economic growth grew at 3.50 percent during the first half of this year.
• The unemployment rate is likely to remain in the range of 9 percent to 10 percent. The survey indicated it will take another four years before the unemployment rate drops to a more normal level of 5 percent.
• Consumer spending, or lack thereof, will be the biggest culprit of the ongoing recession. Despite low interest rates, consumer spending is likely to weaken further.
• Anemic consumer spending will cause businesses to be shy about hiring, further evidence of continued high unemployment.
• Loss of tax revenue will cause shortfalls in state budgets and will force state and local governments to cut services and lay off workers, exacerbating the unemployment problem.
• If these economists’ predictions are correct, we are indeed in for some more pain. Consider the following:
• Economic growth would have to equal 5 percent to reduce the unemployment rate by 1 percent.
• Economic growth must be at 3 percent to create enough jobs to keep up with the population growth.

Despite all this bad news, these economic experts also are expecting continued low inflation. Consumer prices are expected to rise by 1.1 percent in 2010 and 1.6 percent in 2011. This compares with a 2.7 percent increase in 2009.

This bodes well for interest rates. If these guys are right, it’s very possible that mortgage rates could remain extraordinarily low for the next 12 months or more.

Don’t, however, let that notion keep you on the fence, waiting for a lower refi rate. A year or so ago, after the Bush/Obama joint $800 billion dollar multibailout plan, I don’t think any economist predicted we would have tame inflation and superlow mortgage rates in August 2010. These guys could be dead wrong. Stay tuned.

Send e-mail to henrysavage@pmcmortgage.com.