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April 18th, 2011 (Modified on April 25th, 2011)

Mortgage rates at a crossroad — will they rise or fall?

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iStock_Rolling the DiceMortgage rates are coming to a crossroads of sorts — will they rise or taper off moving forward? While their pending direction isn’t quite a coin flip, opposing market forces — which are coming to a head — could draw mortgage rates in either direction, explains the latest issue of HSH.com’s Market Trends Newsletter.

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The big influencer in all of this, the force which is likely to be responsible for whichever direction mortgage rates take moving forward, is inflation:

Given the evidence, there’s little doubt that inflation is returning to some degree. Rising prices in the economy tend to foster higher mortgage interest rates, which would be most unwelcome in light of today’s pathetic housing market.

These developing price pressures — even worries about widespread inflation — aren’t yet sufficient to cause an economy-wide rise in prices. There is still plenty of “resource lack” in the form of un- and under-employed people, and factories are hardly operating at levels which would produce an inflation-creating bottleneck in production.

Still, we do have inflation. The question is, is the nature of the inflation we are experiencing more likely to expand to other areas of the economy and further lifting interest rates, or rather such as to cause an economic slowdown… which would tend to see interest rates ease? It is a question that the markets seem to be pondering right now, and at least mortgage interest rates are in a holding pattern as a result.

As mortgage rates remained pretty steady again last week, we wonder just how long this consistent pattern can hold for:

HSH.com’s overall mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — found that the overall average rate for 30-year fixed-rate mortgages rose by just a single basis point (.01%) to 5.18% A key component of the first-time homebuyer market FHA-insured 30-year fixed-rate mortgages eased back by rose by two basis points to land at 4.83%. ARMs are starting regain at least some favor in the market, and Hybrid 5/1 ARMs, arguably the most preferred alternative to the traditional 30-year FRM (particularly for jumbo buyers) also slipped back by two one-hundredths of a percentage point (.02%) to finish the week at 3.83%.

So, which direction will mortgage rates take? Will rates rise or will they fall in the coming months? As the Market Trends explains, “We won’t know until [inflation] gets here, but absent another economic catastrophe, don’t count on significantly lower mortgage rates, even if they may dip from time to time.”

To find out if we expect mortgage rates to rise or fall this week, please continue reading our latest Market Trends Newsletter titled, “For mortgage rates, which trend will prevail?

If you’re looking for a mortgage-rate forecast that looks some nine weeks into the future, be sure to check out our “Two month forecast for mortgage rates.”

HSH.com’s free Market Trends Newsletter, an in-depth analysis of various financial markets from the week prior, is published every Monday. Email subscribers receive it in their inbox Friday night, so sign up today

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

Our bloggers:

Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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