Mortgage Interest Rates Stay Low. Surprise!

Bracing for higher mortgage rates? Well, relax. Looks like rates will rise much more slowly than anyone anticipated.

Number crunchers now predict that interest rates for 30-year, fixed-rate home loans will average 5.6 percent in the fourth quarter of this year, according to Freddie Mac's latest Economic and Housing Outlook. That's a big change from just two months ago, when they predicted interest rates would rise to 6 percent.

What's happening? Interest rates were expected to rise this year as the federal government ends a massive effort to keep interest rates down during the financial panic. The government is ending its buying spree, as promised. But so far, private investors have pumped cash into the mortgage market fast enough to replace the federal dollars that are no longer flowing, keeping interest rates relatively low.

"Financial market conditions are improving," says Frank Nothaft, Freddie Mac vice president and chief economist. "Liquidity is returning to the markets, even as the Fed discusses its eventual exit from the extraordinary measures put in place during the crisis."