More Rates Forecast – How You Are Affected By The Problem
would fall. However, banks and other lenders may choose not to pass on the reductions to home owners.
The reason for this is not greed – there is adequate competition in the mortgage lending market to ensure that no bank or other lender can profit unfairly. The reason is that being a mortgage lender just became a whole lot more risky, and risk raises interest rates.
Mortgage lenders are charging everyone more interest to offset their losses on the few who will fail to pay their mortgages. Until the US housing market settles down, default risk will stay high, and mortgage interest rate forecast will keep going up.
There is a limit to how much the Fed can lower interest rates, too. The actual interest rate (called the “nominal” rate) includes an allowance for inflation. To find the “real” interest rate, you subtract inflation from the nominal interest rate.
Today, when you do that, you get a negative number! It’s a real anomaly – nominal interest rates are lower than the inflation rate.
Clearly, this is a situation that cannot continue for long. Sooner or later, probably sooner, the Fed will have to raise interest rates to at least break-even levels, matching the rate of inflation. When it comes, the interest rate rise will immediately flow through into mortgage rates.
What we are saying is that it’s really only a matter of time, and not much time, before home mortgage rate forecast rise again.
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