Mortgage interest rates are at historic lows during economic and political uncertainty. When the world’s economies stabilize, mortgage rates may rise.
Mortgage interest rates dropped again this week, hovering near all-time lows, according to the Freddie Mac weekly primary mortgage market survey.
This week, the 30-year fixed-rate mortgage averaged 3.55 percent, with an average 0.7 point (a point is one percent of the loan amount) in fees. A year ago, the 30-year fixed-rate mortgage averaged 4.12 percent.
The 15-year loan averaged 2.86 percent, with an average 0.6 point in fees, down from 3.33 percent a year ago. A 5/1 adjustable rate mortgage (ARM) averaged 2.75 percent, with 0.7 point in fees, down from 2.96 percent a year ago. The 1-year Treasury-indexed ARM averaged 2.61 percent with an average 0.4 point in fees, down from 2.84 percent a year ago.
According to Frank Nothaft, vice president and chief economist of Freddie Mac, while consumer confidence picked up slightly in August, according to the University of Michigan, it remained below the 2012 peak in August. A bigger concern is the manufacturing industry, which “contracted for the third consecutive month in August,” he noted.
But there’s more going on than just a contraction in the manufacturing industry, though that in itself is a significant concern.
Between the upcoming presidential election, Euro crisis and recession, and the Chinese slowdown, there are significant economic undertows. Earlier this summer, the International Monetary Fund (IMF) warned the world’s economies were slowing down and could fall into a global recession. Even now, Hungary has slipped into its second recession in four years, and Greece’s recession could deepen depending on what happens with cuts.
While it’s easy to say that Greece’s economy doesn’t mean much in the grand scheme of things, some of Europe’s biggest economies, including Spain and Italy, are in trouble. Dismantling the Euro would be tremendously destabilizing to the world economy, even if it proves to be the right path down the line.
Which brings us back to mortgage interest rates. With so much economic and political uncertainty, bond traders are flocking to the place that looks like the safest bet – the U.S. stock and bond markets. The so-called “flight to quality” means bond and stock prices go up and mortgage interest rates go down.
The question you’ve got to ask is what happens when the world’s economies begin to stabilize? The answer seems simple: money will flow to the best opportunities just like water finds the lowest levels.
When money flows out of the U.S. stock and bond markets, prices may drop and mortgage rates may rise – maybe not astronomically, but this historic mortgage opportunity will change.
Last week at its annual retreat in Jackson Hole, WY, Federal Reserve Chairman Ben Bernanke said that interest rates would stay low through 2014. They can’t get much lower than they are today.
If you haven’t refinanced or bought property, and you want to, your outlook is to get it done in the next 18 to 24 months, while interest rates flirt at historic lows.
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