Mortgage Rates Predictions For The Next 12 Months
Former Fed Chief Alan Greenspan made fashionable the expression “conundrum.” When it comes to projecting mortgage rates, a woman will also meet a sort of conundrum. The country is now having a nationwide tug of war unfold between two substantial forces that effect mortgage rates. Each is pulling in a separate route. Correctly anticipating which side will triumph will determine the difference between mortgage rates forecasts that are right on the money, and mortgage rates predictions that are way off of what actually occurs.
At the very core of the issue on one side you have a rapidly slowing economy putting power on mortgage rates to tumble. In addition to that there is a glut of homes currently for sale on the market and a scantness of buyers. This exerts enormous pressure on mortgage rates to sink. However, on the opposing side you have inflation rising.
Rising inflation forces mortgage rates to go up. If I let you borrow $1,000 today for a period of one year, and inflation causes that same $1,000 to only be able to purchase the present day’s $900 worth of items one year from now, my $1,000 is really only valued at $900 when you factor in inflation. If are going up by 10% per year (and gasoline, heating, and food prices are going up by even more), I would need to be repaid at least 10% more one year from now just to break even.
The trigger of inflation is central bankers creating too much money out of thin air. Just as wet roads are a symptom of rain, rising prices are a symptom of inflation. Rising prices aren’t inflation, they are merely a symptom of the real issue: dilution of the value of money. This dilution is a result of an excess of money printing by central banks and governments. It is not that prices are going up, it’s the value of money falling.
The higher the inflation rate, the greater the yield that banks demand in order to lend money. Normally, lenders require a real profit of at minimum 2%. That’s 2% on top of whatever the actual rate of inflation is at.
The subprime mortgage crisis has caused a great deal of stress to the financial system and with the Federal Reserve printing money like crazy to bail out Wall Street investment firms, as well as creating money like crazy to cover government deficit spending, inflation will continue to rise. It is highly probable that forecasts of higher interest rates to come with every passing month will be accurate.
In spite of a slowing economy, growing inflation will force lenders to require higher interest rates. The days of dropping mortgage rates are long gone. The most accurate mortgage rates predictions are for step by step increases later this year and into next.