Predicting Interest Rates

Predicting housing prices recalls Mark Twain's old saw about picking stocks. "Picking stocks is easy," he said. "Only buy stocks that go up. If they don't go up, don't buy 'em."

Similarly, to divine the direction of housing prices, just figure out where the economy and interest rates are headed (plus employment and inflation). Once you've done that . . . you know where housing prices are headed!

Unfortunately, no one has shown an ability to accurately forecast the direction of (long-term) interest rates, Federal Reserve Chairman Ben Bernanke included. (The Fed controls short-term interest rates, so that's another story). However, there do seem to be some predictable, seasonal influences that buyers and sellers should take note of.

Just as gas prices predictably rise ahead of Memorial Day weekend, when people fill up their tanks for car trips, interest rates tend to rise in Spring. Lenders know (surprise!) that that's when the housing market is busiest, especially in climates with extreme Winter (or Summer) weather, and the greatest number of buyers are in the market for mortgages. Economics 101 says higher demand for mortgages translates into higher interest rates.

Conversely, rates tend to be lowest when housing activity is at low ebb. In the Twin Cities, that interval frequently spans from just before Thanksgiving until around the beginning of February.

So, should you wait until late Fall to buy? Probably not, for two reasons. First, the foregoing seasonal influences are relatively weak, like lunar tides. They can -- and are -- overridden by stronger forces, like the direction of the economy.

Second, while rates may indeed be lower closer to Thanksgiving, the selection of homes for sale is typically smaller, too. Better to get the house you really want, then wait to refinance, than get a marginally lower interest rate on a home that may not be as good a fit.