How Do I Predict Mortgage Trends?

Alex Newth

Predicting mortgage trends can be difficult, because there are many factors to consider and many of the experts do not agree on what one factor has the most power. A bank’s prime rate often is used to predict mortgage trends, because few people buy a house without a bank’s backing. Common economic factors that may inhibit or increase spending, such as unemployment and inflation, can be used to predict rate trends. Other factors that can stop spending, such as governmental activity, also can be used to predict the rates. Treasury bond rates, in America, also tend to help people predict mortgage rates.

Many economic factors should be considered when predicting mortgage trends.
Many economic factors should be considered when predicting mortgage trends.

When someone wants to buy property, he often seeks a loan from the bank. The bank uses many factors to determine an interest rate for the borrower, but one often-published factor is the prime rate, or the best rate a borrower can receive. If the prime rate is high, then the mortgage trends will tend to increase because it will cost more to purchase property.

Many economic factors come into play that help people decide if they should buy a house or continue renting. These normally are common factors that affect a country or region as a whole, and they may have the power to increase or decrease most other rates. If unemployment and inflation are high, then fewer people will buy houses and mortgages trend downward.

The governmental activity of a region or country has the power to affect how many people want to buy property. If there is a domestic war and political unrest, then few people will be willing to put down any money for a house. Government also may issue bonds or other financial devices to reduce the cost of property, which also can affect mortgage trends. As with the economic factors, if governmental activity makes people less willing to buy houses, then mortgage rates normally will sink.

Treasury bonds are used in America, but many other countries and regions have similar bond instruments that are directly backed by the government. Treasury bonds carry no risk — unless the issuer falls — so banks are obligated to make mortgage rates slightly higher than these bonds to entice investors. Usually when these bonds increase in value, mortgage trends will follow it with an upward swing. The difference between the two is normally slight, around 1 percent or 2 percent.

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