Mortgage Rates Predictions For The Upcoming 14 Months
Former Fed Chief Alan Greenspan made common the term “conundrum.” When talking about projecting interest rates, a person will also go through a sort of conundrum. We are currently seeing a nationwide tug of war play out between two substantial forces that effect interest rates. Each is pulling in a separate path. Accurately anticipating which one will triumph will mean the difference between interest rates predictions that are exactly on the money, and mortgage rates predictions that are way off of what actually occurs.
On one hand you have a rapidly stalling economy putting pressure on interest rates to fall. In addition to that there is a oversupply of homes available on the market and a inadequacy of buyers. This exerts formidable pressure on interest rates to sink. But on the converse side you have inflation rising.
Rising inflation causes mortgage rates to rise. If I lend you $1,000 today for a period of one year, and inflation causes that same $1,000 to only be able to purchase the current day’s $900 worth of items one year from today, my $1,000 is really only valued at $900 when you consider inflation. If inflation is running at 10% per year (and gas, energy, and food prices are rising by even more), I would have to be get back at least 10% more one year from today just to come out even.
The basis of inflation is central bankers printing too much money out of thin air. Just as wet roads are evidence of rain, rising prices are evidence of inflation. Rising prices aren’t inflation, they are only a symptom of the true quagmire: dilution of the value of money. This dilution is an aftermath of an excess of money printing by central banks and governments. It’s not that prices are going up, it’s the worth of money going down.
Accordingly, the loftier the inflation rate, the higher the yield that banks demand in order to loan money. Generally, lenders want a real profit of at minimum 2%. That’s 2% on top of whatever the actual rate of inflation is at.
With the Federal Reserve creating money out of thin air like crazy to bail out Wall Street investment houses, as well as printing money like bonkers to cover government deficit spending, inflation will continue to rise. It is highly probable that predictions of higher interest rates to come with every passing month will be correct.
Despite a deteriorating economy, growing inflation will force lenders to demand higher interest rates. The days of dropping mortgage rates are gone. The most accurate mortgage rates predictions are for continual increases the second half of this year and into next.
Posted on: Friday, June 13, 2008 at 10:56 pm 
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