This is a more complicated question than you might think. Many different factors can affect mortgage interest rates including inflation, probably the largest factor.
Inflation is the measure of the difference in the prices of two sets of goods at two different points in time. Basically compare the price of a loaf of bread today versus this same time a year ago. That is inflation at it's most basic level. Higher inflation is generally associated with a growing economy, when the economy is strong there is more demand for goods and services so the producers of the goods and services can demand a higher premium. Thus the price of the same goods "inflates". Therefore a good economy means higher costs because the consumer can afford to pay more. In a growing economy the demand for credit grows and the interest rates go up. This is based on the fundamental economic concept known simply as supply and demand. The greater the need, the higher the cost. Inflation, however is a necessary evil, without it our economy doesn't grow. Everyone wants to make more money, if your boss makes more then he can afford to pay you more. If you get paid more then you can afford to buy more. It is a delicate balance, no doubt about it.
To muddle the picture even more, there are several different ways to measure inflation! There are also two different camps of mainstream economists, Monetarists and Keynesian. The views of these two groups of people vary on the formula for setting the rate of inflation. I personally don't overly concern myself with the different ways inflation is measured, however I do pay very close attention to what data the inflation index uses. There are several different reports used to formulate inflation, here are a list of a few;
New Home Sales
Consumer Confidence
Durable Goods Orders
Crude Inventories
Gross Domestic Product
GDP Chain Deflator
Jobless Claims
Personal Income
Personal Spending
Personal Consumption Expenditures
Consumer Sentiment Index
Retail Sales
Producer Price Index
Consumer Price Index
That is not nearly all of them, but you get the idea. A well qualified mortgage broker should keep up on all of these reports. Some are monthly, weekly, and annually. Those of us who care to make a career in this industry usually follow these so closely that we can generally forecast short term rate changes. No one has the crystal ball, but due to available data and market forecasts your broker should be able to put the puzzle together. In regard to these reports, one thing you should always keep in mind is that good economic news is bad for interest rates, bad economic news is good for interest rates. Again, it all comes down to supply and demand. Good economic news means you are making more and can afford to pay more, bad economic news means you are making less and can't afford to pay as much.
Finally, keep in mind that there are many different factors in inflation. Many different market reactions to certain news and also the media can spin good or bad news whichever way the want. Your best option is to find a mortgage broker who is knowledgeable, has a great understanding of economics and monetary policy. Once you find that person, "Ahem", get to know each other on a consultant/consulted basis. You don't want a broker who you just call when you want to re-finance, or worse, just pick a broker you don't already know because he told you that he had the lowest rate. If you call your broker or your broker only calls you when it is time to refi then you are nothing more than a transaction to him. Know that I am always available for questions via email. Thanks for reading, I'll see you next week.
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