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By: Jennifer Stromsteen

Alan Greenspan made popular the term "conundrum." When it comes to predicting mortgage rates, a woman will also experience a similar type of conundrum. The country is now having a nationwide tug of war unfold between two awesome forces that effect mortgage rates. Each force is pulling in a unrelated direction. Accurately anticipating which force will reign will mean the difference between mortgage rates forecasts that are right on the money, and interest rate forecasts that are entirely off of what actually happens.

On one side you have a rapidly stalling economy exerting force on mortgage rates to tumble. In addition to that there is a glut of houses currently available in the market and a shortage of buyers. This exerts enormous weight on mortgage rates to sink. However, on the converse side you have inflation increasing.

Increasing inflation causes mortgage rates to rise. If I let you borrow $1,000 today for a period of one year, and inflation results in that same $1,000 to only be able to purchase the present day's $900 worth of products one year from now, my $1,000 is really only valued at $900 when you take into account inflation. If are going up by 10% per year (and gasoline, energy, and food prices are rising by even more), I would need to be get back at least 10% more one year from now just to break even.

The basis of inflation is central bankers creating too much money out of thin air. Just as wet roads are a symptom of rain, rising prices are a symptom of inflation. Rising prices are not inflation, they are only a symptom of the real situation: dilution of the value of money. This dilution is a ramification of an excess of money printing by central banks and governments. It is not that prices are going up, it's the worth of money falling.

The higher the inflation rate, the higher the yield that lenders need in order to loan money. Typically, lenders want a real return of at least 2%. That's 2% above whatever the real rate of inflation is.

The sub-prime mortgage crisis has caused a great deal of stress to the financial system and with the Federal Reserve printing money like crazy to bail out Wall Street investment houses, as well as creating money like cuckoo to cover government deficit spending, inflation will continue to rise. It is extremely probable that forecasts of higher mortgage rates to come with each passing month will be accurate.

In spite of a stalling economy, growing inflation will force lenders to demand higher rates. The time of falling mortgage rates are gone. The most accurate mortgage rate predictions
are for step by step increases later this year and into next.

Article source http://www.marketingarticlebank.com

J Stromsteen has many years experience in the finance, real estate, and insurance industry. She writes for the website First Time Home Buyers.


Confusing pre-qualification with pre-approval can mean disappointment for both a home seller and a buyer.  Real estate experts say it's smart to urge buyers to become pre-approved by their lender - not just pre-qualified.

For buyers to obtain a bona fide pre-approval, they must submit a loan application with the necessary documentation and fee.  After the lender verifies and analyzes the application, it will notify the applicant of how much money he/she can afford to borrow.  Arrmed with that information, the buyer can confidently go home shopping.

Pre-qualifications are simply an estimate of what a buyer can afford.  A buyer who assumes that his estimate is accurate and chooses a home based on the information may, in fact, may be denied a loan when he/she actually applies.  That results in a situation that wastes the buyer's time and can put a seller in a bad position, if they've already turned away another qualified buyer.  (And, of course, it wastes the real estate practioner's time as well.)

Source:  Realtor Magazine Online  Daily Real Estate News - July 16, 2007 Kiplinger's personal Finance Magazine (09/01/07)

How Much Can You Afford?

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