Mark Lawrence

By Julie Haviv

NEW YORK, Jan 8 (Reuters) - Massive efforts by the Federal Reserve to bring down mortgage rates have so far been a success, but homeowners had better act fast because analysts say record low rates could be gone as soon as this summer.

Thirty-year mortgage rates dropped to a low of 5.01 percent this week -- their lowest since 1971 -- after the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of securities backed by Fannie Mae <FNM.P>, Freddie Mac <FRE.P> and Ginnie Mae.

They could touch as low as 4.50 percent, but the cheap loans will not last long, mortgage experts warned.

"The downward trend we have seen in mortgage rates will not last beyond the first half of this year," said Celia Chen, senior director of housing economics at Moody's Economy.com in West Chester, Pennsylvania.

"By then, the Federal Reserve's program will have run its course and other issues will move to the forefront that could push mortgage rates higher," she said.

The Fed has also embarked on a program to buy up to $100 billion in unsecured debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks in a move also aimed at lowering interest rates on mortgages.

The prospect of affordable home financing has provided a glimmer of hope for the U.S. economy with the housing market in the worst downturn since the Great Depression.

But if mortgage rates rise, they will further paralyze a housing market already beset by plunging home prices, an unwieldy supply of homes for sale, tighter lending standards by risk-shy banks and surging foreclosures.

Even if the Fed extends its mortgage bond buying program past the summer, its other efforts to flood financial markets with cash will work against low rates.

They include the inflationary impact of both the Federal Reserve's near-zero interest rate policy and the massive looming fiscal stimulus from the government which must be paid for by more government debt, pushing up interest rates.

A 30-year fixed-rate mortgage at 4.50 percent is a level apparently targeted by policy makers.

Moody's Economy.com forecasts interest rates rates hitting 4.50 percent by the middle of 2009 after dropping to a low of 4.37 percent in the second quarter. But, by the third quarter and fourth quarter interest rates will be climbing to 4.57 percent and 5.18 percent, respectively.

By the first quarter of 2010, rates should be at 5.87 percent, Chen said.

"Low mortgage rates are important, but there is no evidence that lenders are lending and that is crucial," she said.

Treasury yields, which move inversely to price, are linked to mortgage rates. The Treasury is seeking to fund an estimated deficit of $1 trillion or more over the coming year.

TOO LOFTY A GOAL

Cameron Findlay, chief economist at online loan broker LendingTree.com in Charlotte, North Carolina, said mortgage rates at 4.50 percent remained possible, but not probable.

"For now the Fed has implemented change to entice rates to decline and are in a holding pattern to see the impact," he said.

"Up until a few weeks ago, people thought 4.50 percent was a realistic target for rates within 60-90 days, but that idea has dissolved," he said.

What has changed since November is the Fed's decision to ax interest rates to almost zero to help revive the economy, leaving the central bank with fewer options to cut rates.

Findlay said mortgage rates should stay in a range between 5.00 percent and 5.50 percent for the next eight weeks or so barring any additional Federal Reserve action.

Expectations of a 30-year fixed-rate mortgage at 4.50 percent are too ambitious, said Greg McBride, senior financial analyst at Bankrate, Inc, in North Palm Beach, Florida.

"Inflation worries may begin to spook investors and that could send Treasury yields higher, which would cause a corresponding move higher in mortgage rates," he said.

(Editing by Gary Crosse)

((Reuters Messaging: julie.haviv.reuters.com@reuters.net; e-mail: julie.haviv@thomsonreuters.com; +1-646-223-6153)) Keywords: USA ECONOMY/HOUSING

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