Mortgage rates predictions have been plumbing new depths, as the US government bails frantically to stop the US economy from sinking under the accumulated weight of the reckless lending chickens coming home to roost. Negative real interest rates are well and truly entrenched, held in place by political rather than economic forces, but held in place nonetheless.
Real interest rates are the nominal interest rates less the rate of inflation. Nominal interest rates are the mortgage interest rates quoted by banks and other lenders – the percentage rate per annum which you will pay the lender as interest. While most mortgage interest rate predictions will be made in terms of nominal interest rates, the real interest rate is the interest rate of real interest to economic observers.
Why does an academic exercise like calculating real interest rates matter for home mortgage interest rate predictions?
The answer is simple – home mortgage rate predictions will take into account tensions between the current real interest rate and the normal, or sustainable real interest rate. If the real interest rate is below normal, mortgage rates predictions will trend upward. If the real interest rate is noticeably above normal, mortgage rates predictions will trend downward. Economic pressures work to pull real interest rates back into the normal range, eventually.
Real interest rates are likely to remain negative for a while yet, which means that mortgage rates predictions are still looking at historically low nominal interest rates.
If you want to take advantage of the once-in-a-lifetime opportunity, lock in a 30-year mortgage at a really low interest rate, while you still can. Mortgage rates predictions are definitely going to rise, and if you have secured yourself a golden seat in the low-interest carriage, you will ride out those rises without risking a penny of your hard-earned cash.
As a home owner, you need to stay alert during this crisis. The Chinese character for “crisis” is a combination or the characters for “danger” and “opportunity”, and that is indeed the situation for home owners in the US today. The decisions you make now will determine whether you suffer or profit from the global economic crisis. Mortgage rates predictions are telling us that now is the best time to secure a 30 year mortgage at an all-time bargain rate of interest. Rates must rise at some point in the next couple of years, and you don’t want to be caught out when they do.
We’re living in a bit of a fantasy world at the moment, where our economic actions don’t have the normal consequences. If you can, make one part of the fantasy world – low mortgage rates – a permanent feature for the next 30 years. But beware – mortgage interest rates predictions must rise eventually, along with credit card interest rates and auto loan interest rates, so make sure your budget can handle it when they do.
