Historically low interests rates (again)


You may have read about it, or heard it on the news. Either way, interest rates hit another historic low recently. Why is this the case? As discussed on this blog many times (and my previous blog at clayjeffreys.wordpress.com), it involves the same factors, which include:

  • Bad economic news: While the jobs reports have been better of late, there is renewed fear that another recession could be around the corner. Why?
  • Bad economic forecasts from around the globe: Greece has said (again) that it can’t meet the promised deficit cuts in 2012. This has put renewed fears of a Greek default (and worse case scenario a Euro collapse) back in the minds of investors. These events cause them to pause before putting more money into the Euro zone, and instead look for a safe-haven place for investing money – the U.S. Dollar.
  • Mortgage Backed Security Bonds: that is right! Even with the downgrade, the U.S. Dollar is still considered a safe-haven currency. Investors from around the globe are still buying our bonds (which includes mortgage backed security bonds, known as MBS bonds). As these MBS bond prices rise, interest rates get lower.
  • Miscellaneous factors: the Federal Reserve has announced (again) that it will be buying bonds, including MBS bonds. This has caused their prices to increase, and caused rates to decrease.

In short, the same factors that caused rates to drop initially several years ago (bad economy, poor outlook, safe-haven seeking for investing) is still causing rates to drop today.

How should you respond to the lower interest rates? One could argue that it would be worth waiting and waiting for rates to drop more. I can definitely see that scenario, but be careful. You could miss out altogether. Let me explain.

In November 2010, interest rates were at roughly the same levels they are today (high 3’s for a 30 year fixed conventional mortgage). Then rates rose dramatically. The 30 year fixed rate didn’t go to 4% or 4.5%. By mid December 2010, rates rose from the high 3’s to the low 5’s. In about a month rates increased over 1.500%! It took until May 2011 to make it back to the low 4’s, and until August to make it back to the high 3’s.

This isn’t meant to be a scare tactic. It is simply stating the fact about rates… they go up and down. While they are in the high 3’s, if you haven’t taken 5-10 minutes to discuss the possibility of refinancing, reach out to me. If the property is in Georgia, I’d be glad to help. Furthermore, if you are considering buying, what are you waiting for? Home values versus purchasing power haven’t been this favorable in decades. Combine that with historically low interest rates, and there has never been a better time to buy a home.

It only takes a few minutes to get started, and I might just know someone who can help!

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