Mortgage rates hit all-time lows on December 1st and shot right back up during the month of December.   We came into 2010 with mortgage rates just trading higher one day, lower the next.

We’re starting to get some direction this week.  The FHA 30 Year Fixed rate has moved back to 5% and is now developing a fairly clear trend towards lower rates…for now.

The reason for the move this week has been that the economic news simply wasn’t that great.  The Retail Sales showed we aren’t buying very much and the low inflation data today indicates we’re not growing very fast right now.

2010 FHA Mortgage Rate Predictions

I don’t believe that the data we’ve seen is enough to forecast rates going lower for the entire year.  Things simply weren’t as great as they appeared in December and they’re not as bad as they appeared in the past 48 hours.

To get the best rate in 2010, you need to lock in your rate before the average person starts to think the economy is recovering.  There was great news in housing for nearly all of last year, the jobs market isn’t better–but it’s not worse, and the stock market has come back a lot since the lows.

Still, people aren’t confident.  The “trick” to getting a great FHA loan rate or buying at the lowest price is simply doing it before CNN broadcasts that housing has recovered.   Consumer Confidence is low and the Retails Sales reports confirm it.

When confidence levels soar, so do home prices and mortgage rates.

There is no correlation between the Fed Funds Rate and mortgage rates.  There is a strong correlation between the Federal Open Market Committee’s statement and mortgage rates.

The FOMC meeting yesterday was the big news item of the week.   The tone was balanced and mortgage bonds have responded well today.  Rates are lower by .125%.

Here’s is what we learned yesterday:

Economic Outlook

The Fed is being very cautious in its statements, but it’s being mildly optimistic.   We have generally good economic signals and there is little concern over inflation.   The job market is showing stabilization and possibly improvement.  Housing has already turned the corner and is showing significant improvement.

There is concern and there could be set-backs along the way.  We don’t have a perfect job market, confidence is low, and things are not fixed.  They’re better and the signs say the worst is behind us.

FHA Interest Rate Predictions

Mortgage rates are increasingly getting closer to the beginning of the end.  The Fed reiterated its plan to complete the $1.25 trillion commitment to the mortgage bond purchase plan.  This will end by the end of March 2010.

Rates will go up.  Simple.  The “insider numbers” say that 1% is the target.  WSJ reported that the Fed insiders think we’re looking at a 1% mortgage rate increase when support is gone.

On a $200,000 loan, the difference between today’s 5%-ish rates and April 2010′s 6%-ish rates would be about $125/month.