This is something I am sure every potential homeowner has wondered. After all, it would be great to be able to predict when the best time to purchase your dream home would be. Alas, crystal balls are hard to come by. So the best we can do is watch what is happening in the markets today.

Watching the economy is quickly becoming a national pastime. Things have been bad for long enough, there aren’t many people left who haven’t been affected in some way. If you are one of the lucky ones who still has a stable job, you probably were able to refinance your mortgage at a nice low rate. When the economy is slow, interest rates are usually low. The Federal Reserve does not want to push the economy into a depression so they keep the rate at which banks lend money to other banks low in order to stimulate the economy by giving the banks incentives to lend money.

Mortgage rates tend to track U.S. Treasury bonds, lately it seems the 90 day U.S. Treasury bonds may be a good indicator. Rate changes happen very quickly once the bond rates change. So if you want to predict mortgage rates, you will have to study the same data the people on the Federal Reserve look at. Or alternatively, read the analysts’ predictions as to what the Federal Reserve will do at their next meeting. You can find out more information about the Federal Reserve at www.federalreserve.gov.

You can also look at mortgage rates as a function of supply and demand. If the economy is doing well, people feel inclined to purchase a home or a bigger home, so the demand for mortgages goes up and along with that the interest rates. The banks can afford to be greedier during these times.

This is when banks thrive.

Mortgage rates also take into account the length of the loan, the risk assessment of the borrower,   the type of building the loan is on, and the location. I still remember the difficulties I had obtaining my first real estate mortgage. It wasn’t that I wasn’t qualified, I was. It was that the building had some rather unique features which we had to remove in order for a bank to be willing to lend money for the property. We had to put money in escrow until the features were changed. If you are wondering what it was, you will be surprised to hear that it was a trapdoor in the living room leading to the basement. We changed it to a nice open staircase with  walls and half walls surrounding it. Can you imagine that? I mean who wouldn’t want a trap door in the middle of their living room?

Interest rates are at all time lows. With the 90 day U.S. Treasury rate at only 0.16 %, 30 year fixed mortgage rates are a mere 4.2% higher. I believe this is a linear relationship since people would not have a chance at affording mortgages otherwise when the 90 day U.S. Treasury rates are much higher. Does anyone remember 17% interest rates? It seems like the distant past yet it was only in the 1980s. So if you are currently in the market for a mortgage and your parents are telling you how lucky you are, believe them.

Compared to that, obtaining a mortgage anytime in the next few years should appear like a bargain. Should the economy start recovering dramatically and at a rapid pace, lock in a mortgage rate as quickly as you can.