Alan Greenspan made popular the adage "conundrum." When it comes to projecting mortgage rates, a fellow will also go through a similar type of conundrum. We are now seeing a nationwide tug of war unfold between two tremendous forces that effect mortgage rates. Each force is pulling in a distinct route. Accurately determining which one will dominate will mean the difference between mortgage rates forecasts that are right on target, and mortgage rates predictions that are way off of what actually occurs.

On one hand there is a rapidly stalling economy putting force on mortgage rates to fall. In addition to that there is a glut of houses available on the market and a sparsity of buyers. This puts tremendous weight on mortgage rates to sink. However, on the converse side there is inflation rising.

Rising inflation forces interest rates to rise. If I lend you $1,000 today for a span of one year, and inflation results in that same $1,000 to only be able to purchase the current day's $900 worth of goods one year from now, my $1,000 is really only worth $900 when you factor in inflation. If are going up by 10% per year (and gas, energy, and food prices are rising by even more), I would need to be repaid at least 10% more one year from now just to come out even.

The basis of inflation is central bankers printing too much money. Just as wet streets are evidence of rain, rising prices are evidence of inflation. Rising prices aren't inflation, rising prices are merely a symptom of the real quagmire: dilution of the value of money. This dilution is the outcome of too much money printing by central banks and governments. It's not that the cost of everything is rising, it's the value of money falling.

The higher the inflation rate, the greater the yield that lenders require in order to lend money. Typically, lenders desire a real return of at least 2%. That's 2% on top of whatever the actual rate of inflation is at.

The subprime mortgage crisis has caused a great deal of stress to the financial system and with the Federal Reserve creating money out of thin air like crazy to bail out Wall Street investment houses, as well as printing money like cuckoo to pay for government deficit spending, inflation will continue to rise. It is very likely that forecasts of higher mortgage interest rates to come with every passing month will be correct.

In spite of a stalling economy, growing inflation will force lenders to demand higher rates. The days of falling interest rates are gone. The most accurate are for step by step increases later 2008 and into 2009.