The current mortgage rates forecast will depend greatly on the movement of the 10 year treasury rate.  Currently, we are seeing the 10 year treasury rate at the bottom of an upward trend channel that started at the beginning of 2009.  There is a very strong correlation between the 10 year treasury rate and the 30 year fixed rate mortgage.  If we see the 10 year hold support around 3.4% and moves higher after testing this support, we are very likely to see average mortgage rates move higher.

If the government continues to do everything possible to push daily mortgage rates lower then we could see a breakdown of the 10 year treasury rate which would greatly cloud the mortgage rates forecast.  Over the last few months, the Treasury has decided to auction bonds which saturates the market and pushes bond rates down.  The Federal Reserve is also helping to keep average mortgage rates low by buying up trillions of dollars in mortgage backed securities.  Each of these measure are likely to cause inflation, but President Obama is willing to do whatever it takes to keep daily mortgage rates low in hopes of helping the overall housing market.

The mortgage rates forecast will also be adjusted if we see another large auction of bonds coupled with more purchases of mortgage backed securities there is a good chance that the 10 year treasury rate could work its way all the way back down to 3%.  If this is the case, you can be rest assured that you will see plenty of mortgage news stating that daily mortgage rates are near all time lows.  If mortgage rates break below 5% again, the media will go into a frenzy about how now is the best time to get a refinance rate that is suitable for you.

Personally, I think the government has “cried wolf” too many times and free market capitalism is going to work and the market will set interest rates.  If this does happen, look for the 10 year treasury rate to continue its uptrend and an assault on 4%.  If it does get all the way up to the resistance level of 4%, we are likely to see average mortgage rates work up to 6%.  This is extremely bad news for the overall housing market, but if markets set interest rates, we will all be better off in the long run.  Overall, the current mortgage rates forecast is based on where the 10 year treasury rate moves in the next few weeks.

Average mortgage rates have been all over the map lately, mostly due to government actions.  Over the last three months the government has bought back trillions in mortgage backed securities as well as auctioning billions in debt through treasury notes.  These two actions have caused mortgage rates to stay artificially low as the government is doing everything in their power to put a ceiling on average rates.  This is very bad news for the long term though.

If and when the economy gets better mortgage rates are eventually go the be set by the free market.  If this is the case, we are likely to see mortgage rates MUCH higher than they are now.  When this happens, we will see another drop in home prices as higher mortgage rates  will cause sellers to drop their prices.  The sad part about it all is that this is likely to happen when most of America feels that the housing market is finally getting better.

The most troubling issue I see is that it may take MANY years for the housing market to find a bottom and the whole time the government is going to continue to try to force average mortgage rates lower.  Well, the longer it takes, the more of a whiplash effect it is going to have.  We could see average mortgage rates go up two or three percent in less than a year if this continues.  Eventually the government is going to run out of ammo and the foreigners are going to stop buying our bonds and paper money.  It is very bad news when this happens, but maybe that is exactly what we need right now.