If you are interested in mortgage rate forecasts, also make sure to check out the mortgage rate prediction page as well.  Each week I make mortgage rate predictions before the data is released on Thursday by Freddie Mac.

There is very little debate concerning the overall direction of mortgage rates.  Most of us realize that the long term direction is down.  The question that most people are asking is just how low will mortgage rates go?  Back in January, Bill Gross predicted mortgage rates under 4.5% and he looks to be correct.  Is 4.5% the lowest we will see rates?  I would argue that rates might get all the way to 4% before the government stops creating false interest rates.

Anyone who believes that the free markets have pushed mortgage rates below 5% would be fooling themselves.  The only reason mortgage rates are at historical lows is because the Federal Government feels that low mortgage rates will help America get out of the housing crisis.  In turn, the economy will turn around because home values will start to increase instead of decrease.  I totally agree that housing will bring us out of this global recession, but I disagree with the government creating false mortgage rates.

If mortgage rates are low, there should be a spark in interest in the overall housing market, correct?  Well, that would be true MOST of the time.  When I say most of the time, I mean when the economy is in decent shape and the unemployment rate is not growing.  With the unemployment rate growing, many Americans are quite unlikely to sink their money into a $200,000 home that could lose 10% of its value in the first half year that they own it.

There is little doubt that there is quite a bit of money to be made in the current housing market, but most common Americans do not have the superior knowledge to make money on housing right now.  Even the smartest housing experts are having trouble picking and choosing the right homes in the right markets to get any return on their investment.  Most of the major metropolitan cities, 18 of 20, have seen falling home prices from the month of February to the month of March.  All of those cities have seen a decline year over year; some markets are down well over 40% from their highs in June of 2006.

With this knowledge, we must analyze the overall mortgage rates forecast.  The government feels that low mortgage rates are going to pull the housing market back to prosperity.  Well, if the unemployment rate continues to increase and the overall economy does not quickly get out of this recession, the forecast for mortgage rates looks to be a continued downward trend.  That downward trend is likely to continue until President Obama, Ben Bernanke and the entire Obama administration feel that the housing market has seen a bottom.

There is no possible way that anyone can truly believe that housing has seen a bottom.  This means that the government is going to continue to sink trillions of dollars into mortgage backed securities to create extremely low mortgage rates.  To determine how low mortgage rates will go we must make a decision on when we feel the economy will get better.  Some have predicted that by the end of the year we will see a turn around in unemployment and many major corporations will start to see profits increaes.

Once again, I am not sure I agree with this assessment.  If corporations have just started laying people off, it is going to take them some time to understand how to make money with a smaller staff.  There is no arguing that major corporations are learning how to save money by laying off workers, but are they going to be able to provide the same goods and services they once did with half of the staff.  This will not happen overnight and will cause many companies to “rewire” their overall business strategy.

Most reputable corporations know that it is going to take at least a year to change the way things used to be run.  A year from when lay offs started would be February of 2010 for most companies.  So, at the beginning of 2010 we are likely to see major American corporations start to turn things around.  Does this mean that the unemployment rate will drop?  I seriously do not think so.  Once these companies have started to turn things around, they are not going to want to sink money back into payroll as they have the recent memories of being overstaffed and not making enough money.

Overall, the economy WILL get better.  I hope it happens sooner rather than later, but it will definitely take time.  For those of you who have been smart with your money, you will benefit greatly from this economic downturn.  You will get sales on everything you could have ever wanted AND a mortgage rate under 4.5% is likely.  The problem is that many Americans are not in this boat, that is why the overall economy is in such bad shape.

If I had to make an educated guess at how low mortgage rates will go, I would say they will hit 4% and then see a bounce.  I think this is likely to happen in the spring of 2010 as that is when the overall economy might see a jolt of energy through renewed earnings from the major United States corporations.  With that being said, if you are considering refinancing or buying a new home, I would not wait as you never know when things can turn around.

The one thing that makes free markets interesting is that no one ever knows what is going to happen.  Most of the time, we do not realize we have seen a bottom or top until months after it has happened.  The same holds true with the stock market.  There were very few analysts, minus Jim Rogers, Peter Schiff and Gereld Celente, that predicted a market top back at the beginning of 2008.  Everyone was extremely optimistic and felt that there was no financial crisis.  I guess we all learned that lesson quickly.