Mortgage Forecast for 2006

The picture isn't rosy for home mortgages in 2006, but it isn't bleak either. Economic experts and mortgage bankers are predicting rates to rise slightly, yet remain at levels that are relatively low from an historical standpoint.

"Interest rates are forecast to rise only modestly in 2006, with a flat-to-modestly inverted yield curve," said David Bersen, chief economist for "Fannie Mae," the Federal National Mortgage Association.

Regional experts predict that national trends in the real estate mortgage market will be reflected in Oregon also, with rates on 30-year, fixed-rate mortgages likely going no higher than about 7 percent.

David Lereah, chief economist for the National Association of Realtors®, forecast a national average interest rate for the year of about 6.5 percent on 30-year, fixed-rate mortgages. If the prediction holds, that would leave rates about 10 percent higher than the 5.9-percent average in 2005.

Along with rising rates, Bersen expects the dollar value of loans made during the year to fall by about 22 percent compared to 2005. This is in large part due to lower affordability from the combination of rising rates and record high home prices in most major markets.

In fact, home prices have gotten so high in Oregon that Fannie Mae now considers home loans up to $417,000 to be normal here. Just five years ago, the Fannie Mae maximum for a normal, or "conforming," home loan in Oregon was $275,000.

Starting out the year, interest rates among mortgage lenders in NW Oregon were averaging around 5.89 percent on a 30-year, fixed-rate loan with no discount points and no origination fee, according to figures from bankrate.com. The average APR, or annual percentage rate, was 6.04 percent.