How Long Until Mortgage Interest Rates Rise?
You already missed the amazing low 3.4% interest rate on 30 year mortgages, but today’s rates are still historically low, making it possible to purchase “more house” for less money than you’d have thought possible 8 or 10 years ago.
How long will this last?
In a somewhat contradictory speech on May 20, Federal Reserve Bank of New York President William Dudley laid out three key reasons why the Fed will keep its short-term interest rate (the federal funds rate) below historic averages for the long haul.
The economy is still weak.
Despite politicians telling us everything is just fine now, the economy is still weak on several fronts, and they don’t expect it to change in the near future. The impact of the Great Recession on both businesses and individuals will dampen spending for years to come.
The housing sector is suffering on three fronts:
• It remains difficult for any but those with spotless credit histories to obtain a mortgage.
• High levels of student debt are holding young people back from home ownership.
• Housing inventory is at all-time lows in many communities.
The economy’s future growth potential is declining.
Economists say we have a low growth potential, primarily because baby boomers are retiring at high rates. We’ve all seen how unemployment figures are declining – not because there are more jobs, but because more and more people are leaving the work force.
In fact, a recent report stated that in 40% of American households, no one is employed.
Bank Regulations
Banks make money by taking your deposits and paying you a rate of return for its use, then lending that money out to someone else at a higher rate. It’s not unlike purchasing goods for X and re-selling them for X plus Y.
New regulations imposed after the massive crash in 2008 require banks to hold larger cushions of cash for emergencies. Thus, they have less cash available for lending, which impedes their profits.
The Fed believes that keeping interest rates low will help to stimulate the economy.
So what’s the contradiction?
Note that the federal funds rate has been close to zero since 2008. In better times, it averages around 4.25%. Now they say they expect to start raising rates sometimes in 2015 but expect to keep the rate “well below” 4.25%.
Since they don’t define “well below,” and since a mortgage interest rate of 6% would still be classified as “historically low,” it might be wise to consider purchasing that new home before rates begin to rise in 2015.
So if you’re ready to become a Texas or Washington state homeowner, now is the time to get pre-approved and start that home search.
Call the Mike Clover Group today at 1-800-2232-7409 or apply on line at http://www.mikeclover.com.
