In March 2009, I wrote an article predicting where mortgage rates were headed. The title of this article is “Mortgage Rate Predictions: What the Charts Tell Us.” At the time I wrote this article, interest rates were 6-6.5%. My article received a lot of very bad reviews because many readers thought that I was wrong in predicting that mortgage interest rates would reach 4%. Actually, there were many more predictions in this article that came to pass. Therefore, I am proud of my article. Now, I will try to predict what will happen to interest rates in the future.
Looking at interest rate charts, it is easy to see that there is very little volatility. Therefore, it is very unlikely that a swing to the upside will cause a swing to the downside that exceeds the low interest rates that we are seeing now. In other words, technically speaking, it would be hard to see interest rates go down significantly from what they are in this interest rate cycle.
Looks like inflation is the target
Also, from a fundamental aspect, it seems that the Obama administration is doing everything possible to generate inflation. His refusal to allow US oil companies to drill for oil means there is little chance the price of crude will fall. With any kind of growth in the economy, certainly the price of oil will rise. This would be inflationary.
Also, since they took office, this administration has created a large amount of debt. The national deficit in 2007 was below $200 billion. In the year 2008 it skyrocketed to over $400 billion. Although this is a large deficit, there have been larger deficits in previous years. However, the projected deficit for 2010 is $1.3 trillion!
Can we survive a $1.3 trillion deficit?
Although this number is striking, it wouldn’t be so bad if this deficit created massive growth. However, it has not. So the Fed is trying to deflate the dollar as a means to deflate the deficit. In other words, they are printing more dollars and using these dollars to pay our debts. This simply means that the dollars that we citizens have or will have will be worth less than they are now. This means inflation. We can only hope that it does not turn into hyperinflation.
Even if it isn’t, it certainly means that interest rates will go up very soon. How soon is anyone’s guess. However, since we are trying to pay the deficit that is more than a tenth of our gross national product and we are trying to do it with inflated dollars, we could see interest rates go up substantially. Certainly one would think that 10% on a 30-year mortgage would not be out of the question a year from now. I very much hope to be very far away with this prediction.
