Disinflationary Trends

At least five major reasons support a forecast of low inflation and correspondingly moderate mortgage interest rates (within the range of 5 to 8 percent).

7This discussion does not intend to revoke my earlier caveats to marginal borrowers. No one can guarantee that rates won't jump up two or three points, but the Fed's intentions do not support that forecast. Also, as occurred during 2003-2006, at times the Fed raises short-term rates to calm inflation worries. In such instances, short-term interest rate indexes can increase significantly—yet long-term rates remain stable. See Secret #35.

  1. The Fed's concerted effort to keep inflation in check.
  2. Increasing amounts of money flowing into the bond market as skittish investors shy away from stock market volatility.
  3. Worldwide overcapacity in major industries, such as computer, telecommunications, steel, auto, textiles, and farm products.
  4. The 70-plus million Americans between the ages of 40 and 60 who are shifting from consumption to saving as they prepare to accumulate enough money for retirement.
  5. Most labor unions no longer enjoy enough power to push up wages faster than gains in productivity (the opposite of the situation in the late 1960s through the early 1980s). In addition, immigration and outsourcing will subdue inflationary wage increases.

Are there also calamitous scenes that could be painted? Certainly. But like Scarlett O'Hara, let's think about those another day. If the future you see spotlights fear, stock up your cabin hideaway with canned foods and survival gear. For now, Mortgage Secrets sees a positive outlook. History, current evidence, and reasonable forecasts support that view.

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