Future Interest Rates: Mortgage Rates Predictions

Former Fed Chief Alan Greenspan made common the word “conundrum.” When it comes to predicting mortgage rates, a man will also experience a sort of conundrum. The country is now having a nationwide tug of war play out between two monstrous forces that control mortgage rates. Each force is pulling in a different path. Accurately anticipating which one will triumph will determine the difference between mortgage rates forecasts that are right on target, and forecasts that are way off of what actually occurs.

At the very core of the issue on one side there is a rapidly stalling economy putting pressure on mortgage rates to tumble. In addition to that there is a overstock of inventory currently for sale on the market and a shortage of buyers. This exerts mammoth weight on mortgage rates to fall. But on the converse side there is inflation increasing.

Increasing inflation forces interest rates to go up. If I let you borrow $1,000 today for a period of one year, and inflation results in that same $1,000 to only be able to purchase the present day’s $900 worth of services one year from now, my $1,000 is really only valued at $900 when you take into account inflation. If are going up by 10% per year (and gas, heating, and food prices are going up by even more), I would have to be get back at least 10% more one year from now just to break even.

The cause of inflation is central bankers creating too much money. Just as wet streets are symptomatic of rain, rising prices are symptomatic of inflation. Rising prices aren’t inflation, they are only a symptom of the true situation: dilution of the value of money. This dilution is an aftermath of too much money printing by central banks and governments. It’s not that the cost of everything is going up, it’s the worth of money going down.

The higher the inflation rate, the higher the yield that banks require in order to loan money. Typically, lenders need a real profit of at least 2%. That’s 2% on top of whatever the real rate of inflation is.

With the Federal Reserve printing money like crazy to rescue Wall Street investment firms, as well as creating money like crazy to pay for government deficit spending, inflation will continue to rise. It is extremely probable that forecasts of higher mortgage rates to follow with every passing month will be accurate.

Despite a slowing economy, higher inflation will force lenders to require higher interest rates. The days of falling interest rates are over. The most accurate mortgage rates predictions are for continual increases later this year and into next.