Mortgage rates could go up

On March 31, the Federal Reserve will stop buying mortgage-backed securities from Fannie Mae and Freddie Mac, returning control of interest rates to private investors.

For months, industry observers have predicted that once government supports are removed, interest rates will rise quickly, discouraging many of the first-time buyers critical to housing's recovery.

In late summer and fall 2009, lured by fixed 30-year mortgage rates under 5 percent and the first $8,000 tax credit, which expired Nov. 30, first-timers pushed sales of previously owned homes to the highest levels in at least three years, reducing record inventories and braking price declines.

That tax credit was renewed Nov. 5 and expanded to buyers who had not purchased a property in five years, although the credit for repeat buyers is $6,500.

The second credit expires April 30, is unlikely to be renewed, and remains the engine moving buyers.

As the date for the Fed pullout approaches, analysts now generally agree that an immediate rate spike is no longer the likely result.

Meanwhile, the Fed repeated Tuesday its pledge to hold interest rates at record lows to foster the U.S. economic recovery and ease unemployment. The Fed held its target range for its bank lending rate at zero to 0.25 percent, where it's been since December 2008.

In response, commercial banks' prime lending rate, used to peg rates on certain credit cards and consumer loans, has remained at 3.25 percent -- its lowest in decades.

But the Fed's assessment of the economy was a bit more upbeat. It said the job market is stabilizing. That was an improvement from its January statement, when it said the deterioration in the labor market was abating.

It also said business spending on equipment and software has risen significantly, also an upgrade from its last assessment.

Still, the Fed cautioned that spending by consumers could be dampened by high unemployment, sluggish wage growth, lower wealth and tight credit.

And it noted weakness in the commercial real-estate and home-building markets. That's one reason why analysts are concerned about a potential rise in mortgage rates when the Fed buyback program ends. But some say they don't expect any increase to be enough to stymie the recovery in the housing market.

Bankrate.com columnist Holden Lewis said rates are so low now -- averaging 4.87 percent for a 30-year fixed -- that an increase ``is inevitable. But maybe they'll rise gradually instead of jumping'' April 1.