• Short term rates staying low
The Fed Funds rate affects the short term mortgage rates while the Prime rate influences rates on home equity loans and lines of credit. Depending upon Fed Funds rate, initial rates on short term California mortgages (such as 1 year ARM) have gone up with respect to last year's national average rate, but currently there is a downward trend. Similarly 5 year hybrid ARMs marked an upward trend till the beginning of this year and then dropped down slightly.

• Housing market and popular loan options
The California housing market though declined in 2006, yet new sales rose a bit in the beginning of this year. Recent homebuyers have gone for long term loan products in order to refinance their interest-only and adjustable rate mortgages. Despite the stabilization in the housing market, new buyers prefer to deal with alternative loan products like interest-only loans and option ARMs. These programs are likely to remain popular this year due to high housing costs.

However, traditional fixed rate loans and the extended fixed rate products such as 40 year and 50 year mortgages are expected to dominate the market in 2007. Besides, Prime rate ARMs (home equity lines of credit) and hybrid ARMs will also be predominant.


• Conforming loan limit remain stable
The conforming loan limit remains unchanged as in 2006. For single-family first mortgages, the maximum limit is $417000 and that for second mortgages is $208,500. However, single-family applications are likely to improve throughout the year and further into 2008. It is expected that the first 6 months of 2007 will be ideal for a home purchase as interest rates will be low during this time.

As for the whole year, interest rates on California mortgages will remain favorable. However, there is a possibility that the Fed Funds rate may go down after being stable for quite some time but then the change will not occur prior to summer. The Fed may take such a decision to curb the Fed Funds rate on account of inflation threats. But currently the economy is likely to expand slightly in 2007 rather than tip into recession. However, there are concerns over foreclosure which in California is the second highest recorded nationally.