4 Things That Don’t Control The Future Of Mortgage Rates

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When you're shopping for mortgages, one of the biggest challenges is guessing what mortgage rates will do next. Will rates rise? Will rates fall?

Everyone has an opinion, it seems.

Don't Guess On Mortgage Rates

Predicting mortgage rates with any sort of accuracy is tough business.

The experts are wrong as often as they're right. They talk about probabilities and the expectation of future events, and what mortgage rates will do, but every expert's guess is based on information that's already at-hand.

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Nobody can predict the future with 100% accuracy.

For example, we know that when growth is present in the U.S. economy, mortgage bonds become less attractive to investors, driving up mortgage rates.

This is why experts calls for rising mortgage rates when there's economic expansion -- it's a known event with a known outcome.

Once the prediction gets made, though, new information comes into play; like when Japan was ravaged by earthquakes and tsunamis in March. Nature changed the playing economic field and -- despite domestic growth --  U.S. mortgage rates fell.

Natural disasters can't be predicted, nor can global events of any type. This is why predicting mortgage rates is futile. There's too much that's unknown.

There Are No Mortgage Rate "Proxies"

Mortgage rates are made on Wall Street. They are based on mortgage-backed securities and nothing else. Wall Street sets the prices for MBS, and lenders turn prices into rates.

There's no magic formula.

However, as compared to stock markets, mortgage-bond markets are fairly opaque; there are few places to see how bonds are trading on a given day, and even fewer that translate MBS prices into raw mortgage rates. Because of this, rate shoppers tend to look to other sources to see what rates will do next.

For a free mortgage rate quote, click here.

Here are 4 common mortgage rate proxies. Spoiler Alert : They're all poor gauges.

1. 10-Year Treasury Note

Over long periods of time (think: years), the 10-year treasury note trends with mortgage-backed securities. On any given day, however, the two can move in opposite directions. You can't watch the 10-year ticker on the bottom of your TV and think you know where mortgage rates are going.

2. The Fed Funds Rate

The Fed Funds Rate is the rate at which banks borrow from each other overnight. A mortgage rate, by contrast, is the rate at which a homeowner borrows from a lender. If the Fed Funds Rate and mortgage rates were truly connected, this chart wouldn't look so jagged. Mortgage rates don't move with the Fed Funds Rate.

3. Ben Bernanke

Ben Bernanke is the Chairman of the Federal Reserve, the group that establishes the Fed Funds Rate. His influence on mortgage rates is strictly one of rhetoric. When the Fed Chairman says the economic is likely to improve, mortgage rates tend to fall. When the Fed Chairman says the economic will lag, mortgage rates tend to improve. Bernanke speaks publicly just a few times monthly.

4. Congress

Congress can sway mortgage markets with policies and rhetoric, but as the legislative branch of the U.S. government, its influence on mortgage rates is indirect. No matter what Congress says or does to influence the economy, it's still the traders in the mortgage markets that have to take the bait. This has been especially relevant with respect to the August 2 debt deadline date.

What Will Mortgage Rates Do Tomorrow?

There are three possible outcomes for mortgage rates tomorrow. Either they'll rise, they'll fall, or they'll stay the same.

That's about all we can know with certainty because it's not the things we expect to happen that make mortgage rates change each day. It's the things that we don't.

For a free mortgage rate quote, click here.