A Mortgage Rate Prediction For The Next 7 Days (August 26, 2010)

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Looking to lock a mortgage rate this week? Wondering if you should float your rate instead? I'm a contributor to the Bankrate.com Mortgage Rate Trend Index and this week's survey should give you guidance.

Rates For Conforming Mortgages Only

The fine print: These mortgage rate predictions are based on the price of Fannie Mae- and Freddie Mac-issued mortgage-backed securities. MBS pricing is responsible for rates in Cincinnati, Ohio; Lake Forest, IL; and everywhere else you can get a conforming, conventional mortgage.

On the other hand, these predictions do not cover FHA streamline refinances because FHA mortgage rates are based on the price of GNMA securities. Furthermore, "special" loans like non-warrantable condos in Chicago, condotels in Florida, and loans for investors with more than 4 properties financed are excluded.

for a real-time rate quote.

Breaking Down The Predictions

Here's the mortgage rate outlook for the upcoming week:

• 50% think mortgage rates will increase
• 30% think mortgage rates will decrease
• 20% think mortgage rates will won't change

I expect mortgage rates to decrease.

My advice not be appropriate for your individual situation and I'm not always right. Ultimately, you may find your time better spent learning when to use "i.e." and when to use "e.g.".

Either way, here's what I told Bankrate.com:

"An object in motion tends to stay in motion unless acted upon by an outside force. This week, there's no such force. Rates continue downward."

Finally -- physics and economics converge.

Mortgage Rate Rally Reaches 18 Weeks

Week after week, it's been the same story.  Mortgage rates retreat and make new, all-time lows. It's been like this since April.

If you'll remember, there was high hopes for the U.S. economy at the time.  Housing was in repair, spending was on the rise, and confidence was booming.  Wall Street was pouring into stocks and the bond market was prepared for the after-effects of the Fed's withdrawal from mortgage bonds.

It was April 8, 2010, and the average, 30-year fixed mortgage rate was 5.21%.

And then, things went sideways.

First, Eyjafallajökull erupted in Iceland and disrupted the European economy.  Next, Greece sovereign debt problems emerged.  Then, U.S. jobs data failed to show spark, among other economic disappointments. The stock market rally slowed. The bond market rally began.

And, since that time, there's been no real news to slow the flow of money into mortgage bonds, and that's what's pushing mortgage rates lower each week. It's Newton's First Law of Motion As Applied To Mortgage Rates.

Until there's a force to reverse the flow of rates, pricing will continue to improve.

The Reality Check : Rates Are Only Falling 0.03% Per Week

See, here's the thing.  When mortgage rates first started dropped, the week-to-week changes were pretty big.  10 basis points here, 15 basis points there -- it added up pretty quickly.

Since July 1, though, deltas are smaller.

Over the past 8 weeks, on average, mortgage rates have only improved by 3 basis points per week. That's a slow drip, my friends, and it's creating confusion among the people that have already joined the Refi Boom.

See, according to Freddie Mac, mortgage rates keep making new lows week after week. And, technically, it's true. Mortgage rates have made new lows 6 weeks in a row. But -- and it's a big but -- when we add up the improvements to rate over the last six weeks, we see that it only adds up to 1/8 percent.

Rates dropping 1/8 percent in 6 weeks is nothing to write home about.

That tidbit should appease any homeowners with loans in-process who feel like they locked "too soon".  Rates are essentially the same today as they've been for 2 months. The only difference is that the press is giving wall-to-wall coverage which makes it seem like rates have really dropped.  They haven't.

Rather, it's homeowners that haven't joined the Refi Boom that should get moving.

Rates May Drop, But It's Time To Lock-In Anyway

The consistent, gradual decline in mortgage rates is rapidly filling mortgage underwriter pipelines and bogging down the appraisal process. This leads to longer mortgage approval times which, in turn, necessitates longer rate locks.

Longer rate locks mean higher loan costs.  Ergo, don't sit back and wait another week.  Rate should fall by another few basis points, but you'll more than that in closing costs.

To give an application and get locked, call my office at 513-443-2020. It'll be 4-minute call and I'll get a guaranteed interest rate in your hand within an hour. Or, if email is more your thing,and we can get started that way instead.

Either way, it's time to make a move..