It's a matter of faith among many people that "interest rates always drop in an election year." In July 1995, I wrote a newspaper column dismissing the inevitable predictions that interest rates would drop during the 1996 election year as wishful thinking. I could now sit back and say, "see, I told you so." But the fact is, I didn't know that interest rates would rise this year (as they have). The point I was trying to make is that there are far too many factors in the world economy that influence interest rates on a day-to-day basis to make predictions based only on a U.S. presidential election. In my opinion, interest rates are virtually unpredictable with any reasonable degree of accuracy. I think people instinctively know that no one can really predict the future, but they seek out predictions anyway as a means of easing the enormous emotional and financial stress associated with buying a home or refinancing their mortgage. Home buyers and homeowners seem to take comfort in "knowing" that the President won't allow interest rates to rise while he's running for re-election. Unfortunately, the President doesn't have magical powers enabling him to control interest rates. If anyone has magical powers over interest rates, it would be Federal Reserve Chairman Alan Greenspan -- and even he doesn't wield as much power as you might think. Let's look at the record over the past two years: The "Fed" was largely responsible for the big jump in mortgage interest rates in 1994 when it raised short-term interest rates seven times during that year in an effort to head-off rising inflation. Then, in 1995, mortgage rates dropped almost two full percentage points from the high point of December 1994. Ironically, the Fed had virtually nothing to do with the rate drop because it did not reduce its short-term interest rates during that period at all. Interest rates bottomed out again in February of this year, then jumped up sharply in March due to renewed inflation fears. Through the remainder of this year, interest rates have bounced up and down within a fairly narrow "trading range," yet mortgage rates have consistently remained higher than they were throughout 1995. And this is an election year, when interest rates are "always" supposed to drop! To me, this is just further proof of the independent nature of interest rates. They have a "mind of their own." They are buffeted up and down each day by the international crosswinds of the financial markets. At any point in time you can find an expert predicting interest rates will go up, an expert predicting rates will remain stable and an expert predicting interest rates will drop -- and one of them is bound to be right. But the track record of the so-called experts over the years has been terrible.  In 1995, a financial newsletter did a study of 28 expert consensus interest rate predictions published in the Wall Street Journal going back to 1982.  They compared the predictions to the actual interest rates following the predictions.  Guess what?  The "experts" were right only 27% of the time!  That's right -- they were WRONG 3 times out of 4!   You could get better odds flipping a coin.  The President has little, if any, power to move interest rates one way or the other. It's not his "fault" that mortgage rates are still more than one percentage point higher than they were in February of this year, nor does he deserve credit for bringing mortgage rates down in 1995. U.S. interest rates are influenced by a wide range of factors, including the unemployment rate, commodities futures, the international currency exchange, competing interest rates in foreign countries, real and perceived threats of inflation, factory production rates, threats of war, etc., etc. The President is just like the rest of us, an interested bystander. Mortgage interest rates may drop before the end of this year, they may go up, or they may stay the same. Who knows? If you're planning to buy a home, don't try to outguess the financial markets. Make your decisions based on the rates that are actually available today. Mortgage and real estate professionals who think they can accurately predict future interest rates are simply fooling themselves and their clients. Remember, your guess is as good as theirs -- maybe better. The only "sure thing" is the interest rate you can lock-in today. Gamble on interest rates if you will, but never confuse luck with "skill."

That's what I wrote back in 1996, and my feelings haven't changed since then. 

"What are interest rates going to do?"