Interest rates move unpredictably on a short-term basis,
yet cyclically over the longer-term.
In the short-term – from a few hours to a few months – interest rates move up and down based on unpredictable economic and political news that constantly shifts the perception among investors about whether the economy is strengthening or slowing. No mortgage broker, banker, economist, or pundit can accurately and consistently predict these moves, especially on an hourly or daily basis. An unexpected rise in GDP, a better-than-expected employment number, and rates can jump a quarter of a point in a few days. Unrest in the Middle East, or a debt crisis in Europe, and rates can plummet. Economic numbers often surprise the experts, and current events constantly produce market-moving news.
Over longer time scales – from several years to decades – rates move in cycles. Interest rates went up from 1934 until 1981. During that time they followed a fairly predictable pattern, up around two points, down one-and-a-half over a period of several years. A rise in rates after a period of surging economic growth slowed the economy, and as the economy slowed, rates began to fall. After some time those lower rates began to stimulate the economy, and as the economy strengthened, rates begin to rise, and the cycle repeated. Only at the end very end of the 40+ year cycle did the interest rates spike and go ‘parabolic’. Since then, mortgage rates have been coming down inversely to the way they went up—down around two points, and up one to one-and-a-half points over several years. If you had an adjustable rate mortgage during the last 30+ years, you did very well: your monthly payment moved steadily lower as interest rates fell.
There is a growing consensus that the long-term trend is turning around, and that we are again looking at years of steadily higher interest rates. However, even if the long-term trend has changed, history tells us that it is very unlikely that rates will shoot up immediately and dramatically and stay high for a long period of time.