What Mortgage Rates Will Do Over The Next 30 Days (April 23, 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:

• 19% predict mortgage rates will increase
• 31% predict mortgage rates will decrease
• 50% 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 and it's certaintly not as funny as the Henson's 11 movie trailer.

Here's what I told Bankrate.com:

"Inflation concerns resurface after the Fed's April 28-29 meeting."

The Federal Open Market Committee meets Monday and Tuesday next week.  It's been accepted as given that the committee members will hold the Fed Funds Rate within its current target range of 0.000 to 0.250 percent. However, it's not the path of the Fed Funds Rate that will be of import to mortgage markets next week; it'll be the Fed's post-meeting press release.

Like usual, what the Fed says will be much more important than what the Fed does.

See, it's a common belief among Americans that the Federal Reserve controls mortgage rates.  This is incorrect.  If that were true, however, mortgage rates would have increased between 2004 and 2006 while the Fed was jacking the Fed Funds Rate from 1 percent to up over 5 percent. 

The same goes for the way back down.

The Federal Reserve's monetary policy, you can see from the charts, doesn't set 30-year fixed mortgage rates.  Fed Funds Rate changes are meant to slow down or speed up the economy only.  The Fed's policy can, however, exert an influence on mortgage rates.  This is because, in an expansionary economy:

1. Changes to the Fed Funds Rates are meant to contain inflation
2. Inflation reduces the long-term value of the U.S. Dollar
3. The U.S. Dollar is directly tied to mortgage rates

So, if the Fed makes reference to inflationary pressures in its press release while simultaneously leaving the Fed Funds Rate as-is, markets will expect the U.S. Dollar to get weaker later this year which, in turn, should erode the value of mortgage bonds on Wall Street. 

Lower bond prices means higher mortgage rates.

As a reminder, when mortgage rates can 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.