By: Dan Weil
As the 2010 approaches, a mix of housing market factors are falling into place which could lead to a very nasty start to the New Year for the U.S. economy.
If predictions of soaring fixed mortgage rates come true and damper any nascent housing recovery, the United States could experience the double-dip recession many experts have warned is possible.
Morgan Stanley now predicts 10-year Treasury bond yields will jump more than 40 percent next year, while 30-year fixed mortgages may surge more than 50 percent.
The exploding budget deficit will do the damage, David Greenlaw, Morgan Stanley’s chief fixed income economist, told Bloomberg News.
“When you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after yourself,” he said. “Market signals will ultimately spur some policy action, but I’m not naive enough to think it will be a very pleasant environment.”
The firm forecasts the 30-year fixed mortgage rate will hit 7.5 to 8 percent, the highest level in a decade and up from about 5.3 percent now. It also predicts the 10-year Treasury yield will reach 5.5 percent next year from about 3.85 percent now.
The budget deficit ballooned to $1.42 trillion in fiscal 2009 (ending Sept. 30).
Morgan Stanley sees the gap remaining above $1 trillion as the Obama administration and Congress attempt to revive the economy with spending.
http://moneynews.com/Headline/Mortga...2/28/id/344816
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