The Art Of Making Mortgage Rate Predictions
Mortgage rates predictions have consistently trended upward over the past year, because a number of economic factors which influence interest rates predictions are pulling in the same direction. Rising inflation increases mortgage rate predictions, as does a credit squeeze and the rising risk of foreclosurea and subsequent write-downs of house values.
The falling US dollar will put more upward pressure on mortgage rates predictions, both directly, as the government seeks to encourage investment capital to remain in the US, and indirectly, as the rising cost of imported goods feeds into inflation. Higher inflation rates increase mortgage rates predictions because the rate of inflation is directly passed on to borrowers, included their nominal interest rate.
Recent events have highlighted the impact of the current housing crisis on mortgage rates predictions. It began as a sub-prime mortgage crisis, but has now spread to the wider financial market, as house valuations plummet. Even responsible mortgages with a 20% down payment are suddenly turning upside down, as house prices in some parts of the country drop 30% or more, almost overnight.
In July 2008, foreclosure filings were 50% higher than in the same month in 2007. More than 272,000 homes received at least one foreclosure-related notice in July - that is one in every 464 US households, or more than half a percent of all homes. More than 77,000 repossessions were actually carried out in July 2008.
The presence in the market of a large number of homes in foreclosure and pre-foreclosure makes it increasingly difficult to sell homes for their full appraised value. Buyers know there are bargains to be had, and many simply don’t make offers on homes at full price.
This bargain-hunting behavior, while natural, further destabilises the market and increases the security risk across all loans - if the market is not sustaining sales at appraised value, then all property offered as security is potentially worth far less than its book value.
This type of situation makes the risk managers in lending organisations very uncomfortable, and they will be advising higher interest rates for mortgages across the board until the real estate market settles down. Therefore, mortgage rates predictions are headed one way, and one way only - upward even further.
Mortgage rates predictions can be complicated and difficult, because so many different economic factors influence mortgage interest rate predictions. However, at this time in history, mortgage rates predictions are very easy, as all the conflicting economic factors are aligned. Mortgage rates predictions are heading upward for the next few months, and possibly even the next few years.
Filed under Financials