Interest rate predictions can be quite difficult to make because the government is doing everything they can to keep rates at a historically low level.  This means that the markets are not setting interest rates which is the exact reason making predictions is almost impossible.  It seems as if the overall market is signaling that interest rates should be much higher but the Federal Reserve Bank continues to keep overnight rates at almost zero so there is no way for rates to move up.

Mortgage rates have also remained at a historically low level because of the low interest rate on the Fed Funds Rate. Once again, the market continues to signal that these rates should be higher, but it will not be the case as long as Ben Bernanke and the Federal Reserve Bank continue to push interest rates lower. It will be interesting to see how they finally ease out of this without causing a whiplash effect that sends interest rates much higher.

When giving interest rate predictions, we usually look at the 10 year treasury rate yield and see where it is trending. If the 10 year yield is trending higher, we are likely to see mortgage and interest rates move up.  Well, the 10 year yield has been trending higher since the beginning of 2009 yet we still have not seen a strong move up in mortgage rates.

The highest we have seen mortgage rates in 2009 is 5.59% which is still historically low. Eventually the overall market is going to set interest rates but it probably won’t happen until after September.  The Federal Reserve Bank is going to start easing on the purchase of US Treasuries by the end of September.  This is likely a bullish sign for the 10 year treasury rate yield which should push interest and mortgage rates higher.

Who really knows with the current state of affairs though; we might see mortgage rates under 5% for all I know. Interest rate predictions will remain very difficult for a few more months as the government is still playing a big part in the historically low mortgage rates.  With this being the case, now is one of the best times ever to refinance your current mortgage or by your first home.  There are many advertisements out there for mortgage rates under 5%.  You will never know if you can get a mortgage rate this low if you don’t at least contact them and see what type of deal they can give you.  Take advantage of this great time and get out there and get a low mortgage rate!

Author: Alan Lake

The chart above show what mortgage rates have looked like over the last 30 years.  Obviously, since 2006 we have seen another leg down, but this is a great depiction of what mortgage rates have looked like in recent history.  Notice what mortgage rates looked like in the late 1970s and early 1980s.  This was the last time period in which inflation was rampant.  This is very likely to happen again in the near future if the Federal Reserve Bank continues to print money at will.

The worry about inflation is a topic for another discussion, what we see in the near future is lower mortgage rates.  Eventually this long downward trend will be broken to the upside but it does not look as if it is going to happen anytime soon.  Every time the market maven predict that mortgage rates are heading above 6%, the Fed jumps in and gobbles up trillions of dollars in debt to force the 10 year yield and 30 year fixed rate mortgages lower.

Overall, interest rate history shows that low mortgage rates are definitely ahead of us.  If you have been considering refinancing, now is the time to start doing the research so you will be ready when mortgage rates go below 5%.  If you aren’t willing to take the risk of waiting, now is also a great time to get a refinance.  There is nothing wrong with refinancing at a rate near 5%.

On top of the television promotions, Bank of America is definitely working hard through internet advertising as well.  Almost every single financial site I go to is littered with ads that have Bank of America in them somewhere.  I know they are paying a pretty penny to do this, but you have to spend money to make money, right?  I think it is great they Bank of America is finally using internet advertising as a way to generate traffic into their banks.

I know many people who have issues with Bank of America when it comes to banking, but there are few other national choices.  With so few choices, a good marketing plan can go a long way.  Obviously the public will not have access to how well this marketing plan is doing, but at least more eyes are seeing the positive side to Bank of America.  I just hope the banking giant can back it up by providing a good borrowing process.

If any of you have been through the borrowing process with Bank of America, I would like to hear about it.  Was it a good experience?  Did they work with you personally or were you just another number on the books?  The one knock that Bank of America has always had is the fact that they consider their customers numbers rather than people.  Has this changed?

Overall, I applaud Bank of America for putting forth the effort with their current marketing plan.  One thing is for sure, they will get more people in theirs doors.  The question that they must figure out is “how do we treat these people like actual people?”  Corporate America is too big into creating numbers rather than building relationships.  Maybe the current recession will change all of that!

Please use Subprime Blogger to keep up with current mortgage rate trends.  There are also several articles to help you keep up with average mortgage rates.

Interest rate predictions for July could bring bad news for those that hope to get mortgage rates under 5%.  When looking at the 10 year treasury rate, it looks like there is strong support at 3.4% and the 10 year has been sold off very hard since almost hitting 4%.  I would be very surprised if we continue to see a sell off through the support level of the 50 day moving average.  If we see a bounce off of 3.4%, look for mortgage rates too see a bounce off the 5% level.

President Obama and Ben Bernanke are going to do everything possible to not allow this to happen, but sometimes there is nothing the government can do as this is a free market capitalist country.  The buying of mortgage backed securities coupled with the auctioning of treasury bonds has pushed average mortgage rates lower after the quick rise from 4.8% to 5.6% in June.  At one point the government is going to run out of ammo for keeping mortgage rates low.

Unfortunately, when they do run out of ammo, there is going to be a slingshot effect with interest rates.  If you remember the first two weeks of June, when rates went up almost a full percentage point in two weeks, you know exactly what I am talking about.  Sadly, it could be even worse as we are likely to see inflation start to set in as the Federal Reserve Bank has been printing money at will.

With that being said, the interest rate predictions for the month of July shows interest rates going higher, especially towards the end of the month.  It is very possible that we will see mortgage rates grind sideways to downward until the 10 year treasury rate hits support, but then we are likely to see a strong uptrend.  By looking at this chart of the 10 year, you will notice that we are almost at support.  There has been a weak bounce so far, but expect that uptrend to get much strong on its push towards 4%.

If the 10 year treasury rate does hit 4%, look for mortgage rates trends to push rates towards 5.85% or higher.  If you have been considering a refinance or buying a new home, now might be the best time to do it when mortgage rates are at the bottom of an upward trend channel.  If you wait until the end of July, you might see daily mortgage rates much closer to 6%.  Ultimately, interest rates looked be putting in a short term bottom at the beginning of July and then I expect to see an increase through August and possibly into September.  If this is the case, we may see a strong decline in the stock market.

With the Fed continuing to print more money, make sure to invest in inflation investments.  Also, keep up with daily mortgage rates through Subprime Blogger.

Freddie Mac’s weekly mortgage survey showed that average mortgage rates for the 30 year fixed rate mortgage this week were 5.38%; this is actually less than my mortgage rate predictions, but I was quite confident that rates were going to fall as the 10 year treasury note has taken a tumble since reaching 4%.  Today we are actually seeing a 4% daily bounce in the 10 year so we will see if that picks up any steam.  Current mortgage rates are likely to remain volatile as the treasury yields have been extremely unpredictable lately.  The best thing for the current housng market would be for mortgage rates to stablize, but it does not look as if that is going to happen.

The 30 year fixed rate mortgage has taken quite a wild ride in the last month.  This is not good at all for the sentiment of the market.  Mortgage rates are hard enough to figure out as it is.  Home buyers want to see stablized, lower rates so they know what they are jumping into.  That has definitely not been the case as average mortgage rates have moved as much as .75% in ONE day over the last few weeks.  Hopefully this is not discouraging home buyers, but be rest assured that it is making people think twice.

Another major factor with current mortgage rates flucuating so much is that refinancing is harder to do.  If home owners were considering refinancing and they see that average mortgage rates have been all over the map, some of them feel it is not worth the time, effort and closing costs to go through with the process.  This is going to hurt the economy even more as it will be less money in the pockets of home owners who are considered prime borrowers.

I promised a rant yesterday and today’s tirade is directed straight at President Obama and Ben Bernanke.  For many months now President Obama has said that credit is the  lifeblood of the economy.  Hmmm, are you sure?  I realize that during most of your lifetime you have seen an abundance of purchases on credit, but hasn’t the current crisis opened your eyes?  The reason we are in the current economic mess is because of credit yet you STILL think credit is the lifeblood of our economy. President Obama, America elected you on your platform of “change.”  Well, as much as things “change,” they stay exactly the same.  You continue to prop up companies that should go backrupt.  You continue to use tax payers money to bail out Wall Street and you are continuing to devalue the United States dollar.  Change?  If I can remember correctly, this was all blamed on the Bush administration.

Ok, ok, maybe it is not all the President’s fault, maybe some of the blame has to go to Fed Chairman Ben Bernanke.  In March, the prophetic (HAHA) Jim Cramer made the statement “In Bernanke I trust” when it was announced that the government was going to purchase over $1 Trillion in mortgage backed securities. Well, of course Jimmy Cramer was happy because he got to refinance his multi-million dollar mansion for a rate under 5%.  This is all find and dandy, but has ANYONE see the housing market recovery since this action?  We all know that mortgage rates dropped dramitcally but it was artificially created by the government’s purchases.  LET THE MARKET SET INTEREST RATES!  Wait, President Obama and Ben Bernanke disagree with free market capitalism, sorry about that!

Peter Schiff has a great interview on the Daily Show that I encourage all of you to watch.  Jim Rogers and Peter Schiff have been right for years and everyone has laughed at them.  Who is laughing now Wall Street?

The interesting issue we currently have at hand is the fact that the ten year treasury yield started uptrending in January but the prime rate has been set to basically zero for quite some time.  The prime rate has been set at zero because the Federal Government is willing to do whatever it takes to get financial institutions to start lending money again.  If they let the banks and financial institutions borrow money for free, they are likely to start lending to borrowers at a much higher rate.

The issue we currently have has made it very difficult to make interest rate predictions.  There is no doubt that the government is going to keep the prime rate as low as possible until they see the end of the recession at the end of the tunnel.  No one knows when this will be but it doesn’t seem likely in the near term.  So one would think that interest rates would remain low until the government increases the prime rate.

The other side of the argument is that mortgage interest rates are directly correlated to the ten year treasury yield.  With the current ten year treasury yield at 3.7%, mortgage rates should be hovering around 5.6% and not the 4.9% they are at.  The Federal Reserve has created artificial mortgage rates by buying back mortgage backed securities, but there is only so much they can do before free markets actually work and mortgage rates follow the ten year treasury yield.

To make a prediction on where interest rates are headed, you must decide what is a better indicator of interest rates.  Is the prime rate a better indicator or is the ten year treasury yield better?  I personally believe in free markets and do not like the idea that the government is trying to force mortgage rates below 5%.  They have definitely done this for the past two months but eventually they are going to run out of bullets.  There is only so much money that Ben Bernanke can print before other countries stop investing in our currency.

The dollar has already taken quite a plunge since the announcement that the Federal Reserve Bank was going to buy back over $1 Trillion in mortgage backed securities.  It is likely that we will continue to see the dollar sink as the United States is printing this money rather than taxing the citizens.  In my opinion, neither should happen and the government should let free market capitalism work.  As most of you know, that will definitely not happen with the Obama administration.

With all of that being said, I predict that interest rates will head higher with the ten year treasury yield.  If the yield continues its uptrend that started back in January, it is likely that we will see mortgage rates back up to 5.5% or higher.  The government will do everything they can to stop this, but sometimes there is only so much that can be done.  If mortgage rates do continue higher then it will be very interesting to see where the housing market goes.

With higher commodity prices, plummeting home values and the dollar sinking to new year to date lows each and every day, things do not look good for American citizens.  I know that President Obama and his staff are working very hard to help this economy but it seems like we are shooting at a target and missing greatly.  All of the plans he has enacted should begin to show in the economic data, but we have yet to see results.

I will be very interested to see the sentiment of our President if the economy continues on the path it is on.  Unfortunately, most Americans do not realize where we are headed.  There is something to say about being optimistic, but being blind to the fact that things could get much worse is a deathtrap.  I think we all have friends and family who feel the current recession is almost over because “the news said things are getting better.”  Of course the news says things are getting better, most media outlets are in love with President Obama.

I do not like to be the bearer of bad news, but how have things gotten better?  Are any major PRIVATE corporations hiring?  Has anyone seen the value of our currency increase?  Is your home value appreciating?  Are college students getting hired to great jobs like they deserve?  I would imagine that the answer to each of these questions is a solid NO!  Please do not drink the Obama lemonade and think that every plan this man creates is going to help this economy.  I totally admit that he is trying very hard, but some of the ideas he has created are not helping.

I am sure we will continue to try different programs as our president is all about change, but I would like to see a change that actually works.  From the beginning of this presidency I stated that taking money from the rich and giving it to the poor would not help this economy; it looks like I have been right so far.  I also disagree with President Obama feeling that the dollar “remains strong.”  The current results of the President Obama vs Subprime Blogger investment challenge are as follows:

SPY – UP 19.9%
USD – DOWN 5.4%

While President Obama feels the dollar is strong, I believe the opposite therefore I invested in the commodities etfs of Energy, Precious and Base Metals and Agriculture.  Here are my investment returns since March 22nd:

DBA – UP 11.4%
DBB – UP 12.3%
DBE – UP 16.8%
DBP – UP 4.7%

Very interesting to see that I have definitely caught up to the President and I am confident I will dominate this challenge in the years to come!

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