As the business week of 4/16/10 comes to a close, Freddie Mac announced that average 30-year fixed rate mortgages declined to 5.07% from where they were a week ago at 5.21%. A year ago, the conventional rate stood at 4.82%.
Other non-traditional mortgage rate averages were also down for the week as well as being down from a year ago. Various adjustable rate and 15-year mortgages hover around the low to mid four percent range.
However, rates are not expected to remain at these historically low levels for long. A contributing factor to upward pressure on rates is that on March 31, the Federal Reserve ended its purchase program for mortgage-backed securities. Over a 15-month period, it had bought $1.25 Trillion of these high-risk securities. Now it’s up to private investors to step in to keep the market stable. We’ll only learn if this will happen as more time passes.
Additionally, all of the government spending (borrowing) is resulting in upward pressure on 10-year US Treasury notes that brushed the 4% point this week. US Treasury notes heavily influence mortgage rates. Foreign nations (especially China) buy treasury notes that are issued to finance the national debt. In recent weeks China has expressed a concern that the US debt is growing at an unsustainable rate and interest rates will have to increase to compensate for the additional risk.
Almost all of the recent economic news points to higher interest rates all around. Assuming we are coming out of the recession, there is one glaring economic reality to face. The government has bought its way out of the recession with a huge amount of debt. Historically, high debt is followed by inflation. Inflation effectively lowers the debt level when it is repaid with dollars that are worth less. Basic economics at work.
In more interest rate news this week, Federal Reserve Bank of Richmond President Jeffrey M. Lacker spoke on the position of the Federal Reserve’s rate-setting Federal Open Market Committee. Lacker is not a voting member of the committee but he does have substantial influence. In his Thursday interview with the Wall Street Journal, he said the fed and he personally still see keeping the prime rate near zero to contain inflation. However, he also stated that the Fed is watching the situation carefully. There were indications from him that the rate will be raised later this year if the economic recovery continues its modest pace.
Bottom line for real estate investors is this is not a time to be sitting on the sidelines. If you are considering purchasing now is the best time to do it. Waiting will see both real estate prices and interest rates heading up.