Mortgage Rate May Fall to 4.2% By End of Year

The 30-year mortgage rate could fall to nearly 4 percent by the end of the year as both the economy and housing market make a slow recovery, Bank of America-Merrill Lynch said.

Efforts to ease monetary policy combined with a general weakening of the economy will combine to send rates lower, the firm said in a research note to clients.

"We expect that disinflationary forces combined with overt quantitative easing from the Federal Reserve will push the 30-year fixed rate mortgage down from the current 4.85% rate to 4.2% by year-end," the firm said in a note from Bank of America-Merrill Lynch economists Gary Bigg and David A. Rosenberg.

A bottoming in housing still remains elusive, and unemployment rates in excess of 10 percent could hamper a recovery.

But the firm said the decrease in rates is likely to outweigh somewhat the rise in jobless claims, meaning that housing sales are likely to show improvement in the second half of 2009.

Source: finance.yahoo.com