Thursday, July 21, 2011

Current Mortgage Rate Predictions

What mortgage rates predictions is a bit complicated. Financial markets, including those set stock prices and mortgage interest rates, are chaotic systems. This does not mean they are chaotic in the common use of the term, ie, something that is not intended that at all, but that are chaotic in the mathematical sense, in which the formulas that describe how interest mortgage rates are determined, which are formulas used to make mortgage rates predictions, have self-referential components.

What the mortgage rates predictions is like making weather predictions - it is impossible to be precisely accurate mortgage rates predictions, and as early as trying to predict interest mortgage rates, the greater the margin of error in prediction.

On the other hand, chaotic systems are predictable in general terms.

If you think about the weather forecast may not be able to predict the maximum temperature for a certain day in August, but can be reasonably sure it will be within a certain range - for example, if you live in Orlando, between 80 and 95 degrees F, and if you live in Copenhagen, between 16 and 25 degrees C.

As the climate is a broad indicator of summer temperature over the economic climate gives a broad indicator of mortgage rates.

Factors that make up mortgage rates: inflation

The so-called "real interest rates," interest rates that move in response to supply and demand in financial markets, are independent of inflation. Coming from the "real interest rate" to "nominal interest rate," which is what your bank will charge on your mortgage, you simply add the percentage of annual inflation.

Factors that make rising mortgage rates, lower credit availability

Financial markets operate on supply and demand. If there is a limited amount of anything, then go to those who are willing or able to pay more for it. The same goes for the mortgage money. Mortgage rates predictions are taken into account if the money supply is increasing or decreasing, and likewise, the trends in the demand for money.

Factors that make forecasting mortgage rates rise: increased risk

In addition to the interest rate determined by the underlying real economy, inflation, and the supply of money available for mortgage loans, another factor comes into play in any investment decision - risk. Mortgage rates generally depend on the overall risk involved in the housing market.

If house values ​​plummet, as happened in parts of the U.S., the default risk of banks suddenly increases, which means that they want to charge mortgage rates, predictions will be this upward pressure into account.

Factors that make mortgage rates predictions Fall: government intervention

The U.S. Government is a 800-pound gorilla in the financial markets. By issuing Treasury bonds at different interest rates, the government can influence the market price, and therefore affects the "real" interest rate.

Mortgage rates predictions based on purely economic considerations might indicate that mortgage interest rates are expected to increase, but while political pressure is very abundant, and in an election year, the government will do everything in their power, however economically irresponsible in the long term to boost the interest rate rises until after the November elections. Mortgage rates predictions must take this political distortion of financial markets into account.




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