S&P’s chief economist David Wyss expects “home prices will decline by an additional 5%-7% from the 2006 peak before residential real estate prices start to stabilize in the first half of 2010, marking an overall decline of approximately 37% from the July 2006 peak.”  I would argue that it will be much worse than 5%-7%. Overall, the Case-Shiller housing index is off 33.1% since the top in July of 2006.  Another 5%-7% would mean that the housing market bottom would see a 40% nationwide loss.

The reason that Wyss feels the losses will extend is because of the Alt-A and Subprime mortgages still on the books.  The reason that I think that losses will be even worse than that is the accleration of unemployment WITH a stimulus package.  The stimulus package was expected to slow job losses by the 2nd quarter of 2009.  This obviously has not happened as we still seeing an increase in the national unemployment rate.

As I have stated many times in the past, if Americans do not have jobs and they continue to see an up trending unemployment chart, the economy is not going to get better.  Part of the battle that President Obama is having is the psychology of the overall economy.  Just trying to convince Americans that things are getting better is an uphill battle that he is not winning.  The Obama Refinance plan was an attempt, but that seems to not be working that well either.  There are good reasons why Americans do not believe this, but if there was any positive sentiment, we would likely see “some” improvement.

The worst part is that mortgage rates are likely to rise in the next few weeks which is exactly what the housing market does not need.  No one knows when we will see a bottom in housing, but maybe after average mortgage rates rise and we flush out most of the foreclosures and short sales we might see a bottom.  This will obviously take quite a bit of time, but it needs to happen sooner rather than later.

Mortgage rates went lower this week as the Freddie Mac weekly survey showed rates at 5.38%.  Average mortgage rates have been all over the map lately so it is not surprising at all that this is a bounce back from 5.59%.  The question that remains is “will it save you any money?”  Honestly, rates bouncing around like they are is unlikely to save you any money.  I have several friends and family members that locked in around March and April at all time lows, but now things are much different.

Mortgage lenders see fluctuating average mortgage rates and they also notice the the 10 year treasury yield has been in an uptrend for months.  I am not saying that the lenders are going to try to screw you out of money, but they are not stupid.  They realize that mortgage rate trends may be reversing and that we could see rates in excess of 6% soon.  The fact that inflation is a possiblity has also played a part in this artificial mortgage rates market.  The last time we saw huge inflation, mortgage rates went to 17%.  I seriously doubt that will happen again, but it sure is on peoples minds.

Overall, unless you are extremely saving and know exactly how to play the mortgage market, rates bouncing around is not going to help you save money.  It may actually cause you to lose money as the housing market continues to fall with the uncertainity of average mortgage rates.

Thanks to Zillow.com for the chart above that shows just how bad things have gotten in the Phoenix housing market.  The Case-Shiller Index illustrates that Phoenix is down 53% since the July 2006 top.  It will be very interesting to see if higher mortgage rates affect this trend even more.  I would like to hear from anyone in the Phoenix market and please let us know if you have seen any signs of recovery.

Make sure to use Subprime Blogger for your mortgage rates forecast as well as keeping up with mortgage rate trends.