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Mortgage Rate Trends and Forecast

April 8, 2014
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Knowing mortgage rate trends and tracking accurate mortgage interest rate forecasts are important to the home buyer, seller and lender. Being on “the right side of the market” can enhance the profitability of a home sale and mortgage loan — or the affordability of a new mortgage or refinance. But because of its complexity, understanding mortgage rate trends may be as much art as science.

Mortgage rate trends

Interest rate analysts, economists, mortgage brokers and lenders all keep a close eye on mortgage rate trends. Of course, prospective home buyers do, too. The dynamics of a moving bond market, the U.S. Federal Reserve’s asset purchases, domestic and foreign economies and housing demand all affect mortgage rate trends.

Moreover, a secondary market for mortgage-backed securities also impacts mortgage rate trends. Mortgage lenders often sell their mortgages to investors who then package the assets with many other loans to create mortgage-backed securities. When demand for mortgage-backed securities is high, mortgage lenders are more willing to underwrite mortgages and supply increases. This activity pushes mortgage rates lower in the long term. The converse is true when demand for mortgage-backed securities is low.

Mortgage rate forecast

As mortgage rates change incrementally throughout the day, lenders must actively manage their loan portfolio risk and profitability. The price of goods and services throughout the economy are an important factor in any mortgage rate forecast, upon which lenders make their pricing decisions. Whether these prices rise or fall — economists use the term inflation — influences the movement of the bond market, which in turn drives mortgage rates.

If inflation is expected to rise, mortgage rates will generally move higher as well.  As inflation, or the threat of inflation falls, so do mortgage rates.

Fine-tuning the forecast

Unemployment, housing starts, application volume, loan payment delinquencies and the city of a loan’s origination also impact mortgage rate trends and forecasts. And the home loan interest rate you receive will ultimately depend on personal data, including the amount you wish to borrow, your credit history and the dollar value of debt you carry.

Whether you are a first time home buyer or seeking a mortgage refinance, learn more about how to get the best mortgage rates for your situation in NerdWallet’s mortgage guide.

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