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Mortgage Outlook for Marin and San Francisco in 2010

As the New Year begins, prospective homebuyers in the high cost Bay Area are doubtless wondering if 2009’s record low mortgage rates will continue into 2010. Judging from market reaction to Chinese central banker Zhu Min’s December 17th statement that the U.S. can’t expect other nations to increase purchases of Treasuries to fund its entire fiscal shortfall, it appears the likely answer is “no.” In response to his comment, the yield curve on Treasuries shot up along with mortgage interest rates. Rates on 30-year fixed loans have since increased on average by .25% and most projections for 2010 suggest they may climb as much as 1% over 2009’s lows by year’s end.

Although an increase of 1% is certainly significant, this would still keep mortgage rates at the low end of historic averages. For a clearer sense of how this would impact prospective purchases, let’s look at two 30-year fixed scenarios for the conforming and high-balance conforming products and compare last year’s low rates with high projections for 2010:
Conforming $417,000 ($521,250 purchase price, with a 20% down payment):
2009: 4.75% (APR 4.78%) has a monthly payment of $2,175
2010: 5.75% (APR 5.78%) has a monthly payment of $2,434

High-balance conforming $729,750 ($912,188 purchase price, with a 20% down payment):
2009: 4.75% (APR 4.85%) has a monthly payment of $3,807
2010: 5.75% (APR 5.86%) has a monthly payment of $4,259

Keep in mind that the above projections are for long term, 30-year fixed rates as this is where the yield curve comes into play. The yield curve is a graph plotting short-term to long-term rates and is illustrative of the relationship between 2-year and 10-year Treasury note yields. The recent increase in the yield curve reflects investor consensus that an accelerating  recovery will bring inflationary pressures to bear and reduce demand for unprecedented sales of government debt. This widening or steepening of the curve between the two notes is brought on by investor reluctance to offer long-term rates in an inflationary environment. As rates increase on 30-year fixed loans in step with the widening yield curve, borrowers should still have the option of lower rate, adjustable rate mortgages such as 5-year interest only loans.

Rates remain near historic low levels, so prospective borrowers should not feel they’ve missed their opportunity. When ready to lock in purchase money, borrowers should consider how long they plan on remaining in their new home. If buying for the long haul, 30-year fixed money -even at projected increases for later this year –will likely be considered a bargain in hindsight.

Nicholas Ballard is both a mortgage broker and banker specialized in the residential Marin market.  For assistance, please call or e-mail:

Nicholas Ballard: 415-526-1941; [email protected]
Real Estate Financing
CA Dept. of Real Estate #01356374
California Mortgage Advisors, Inc.
CA Dept. of Real Estate #01170868
Redwood Highway, San Rafael

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