What Mortgage Rates Will Do Over The Next 30 Days (May 7, 2009 Edition)

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Are mortgage rates going up?  Are mortgage rates going down?  I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may have your answers.

The Bankrate.com survey is for conforming mortgages.  It does not apply to FHA mortgages, VA mortgages, jumbo mortgages, or foreign national mortgages.  For rate quotes,. .

The group's 30-day prediction for mortgage rates:

• 55% predict mortgage rates will increase
• 9% predict mortgage rates will decrease
• 36% predict mortgage rates will remain unchanged

I am predicting that rates will increase over the next 30 days. My prediction may not be appropriate for your individual situation so don't go taking it to Taco Town.

Here's what I told Bankrate.com:

"Gas prices up, mortgage rates up. Inflation is coming."

For each of the last 5 years, right around the start of May, gas prices have gone on a Summer Run.  It's uncanny how consistent the pattern has been, too.  What starts as an early-year crawl northward picks up speed into Memorial Day.  From there, prices sprint into mid-August before settling down again as the weather turns cooler.

As if on cue, gas prices are up 10 cents over the last week alone.

The pattern's present in mortgage markets, too -- hardly a coincidence when we look at the simple relationship between mortgage rates and oil prices.  It's rooted in rising energy prices leading to inflation and inflation eroding the value mortgage-backed bonds in circulation.  

As inflationary pressures grow, therefore, demand for mortgage-backed bonds wanes, driving bond prices down and pushing mortgage rates up.

This is the pattern that's emerged in each of the last few summers.  This year, though, circumstances are a little different than from 2004 to 2008.  The economy is emerging from recession and the federal government has put the fiscal policy pedal to the metal. 

Damn the Fool in the Shower -- issue one has been to get the economy moving forward. 

To reach that goal, Washington has taken a series of steps, not the least of which is to lower the Fed Funds Rate to practically nothing.  The expressed purpose of these policies and programs, of course, is to spur the economy forward -- otherwise known as "inducing inflation". 

So, not only can oil prices put upward pressure on mortgage rates over the next month, but the cumulative impact of this year's stimulus could, too.  It's why I'm recommending for my clients take the proverbial chips off the table and lock in at today's rates.  Sure, rates may fall a little more, but there's a lot more room for rates to go up rather than down.

As a reminder, mortgage rates often move quickly.  I use Twitter to transmit near-real-time changes.  Watch my feed at http://www.twitter.com/mortgagereports. I post several updates each day.  If you join Twitter and I'm your first follow, let me know you're watching by sending me a tweet. Type "@mortgagereports First Follow" and I'll get the message.