Mortgage Rates Hit Yearly Low
November 30th, 2009
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It was a very good Thanksgiving indeed. Not only was the turkey delightful, but loan rates swooned. Freddie Mac reported that rate for 30-year fixed-rate financing reached 4.78 percent with an average .7 points for the week ending November 25th. This is the same rate we saw on April 30th, a record low.
Having borrowed mortgage money in the past for more than 10 percent, I look at today’s rates with awe. Less than 5 percent? You’re kidding.
I also look around the world and wonder how much longer low rates can continue.
In the headlines we have Dubai, a small city-state which has been in the midst of a massive building program. The architecture is amazing, some of the largest construction projects in the world are underway in Dubai.
But — and not to be a stickler — big buildings need lots of tenants and big residential projects need lots of homeowners, and that’s something which Dubai apparently doesn’t have. A Dubai developer is now some $60 billion in the hole and asking for a six-month payment suspension.
Dubai is far, far away and $60 billion in terms of the world economy is just a financial blemish. By itself, the Dubai problems are small stuff relative to the world economy.
But Dubai is not by itself. We also have Bank Turalem — Kazakhstan’s largest bank — and it appears to have lost billions through investments in the West.
Closer to Home
Because the financial system is now international, integrated and digitized, we in the U.S. can lose big money with great speed when something goes wrong far away — and vice versa.
Dubai and Kazakhstan, to be polite, are not a big deal in the overall scheme of things. But what is a big deal are the overvalued assets on the books of big banks and Wall Street firms. When and if we ever have a full and current accounting based on realistic property values does anyone believe that balance sheets wouldn’t show massive losses?
It’s difficult to argue that the low-ball mortgage rates we’re seeing today will continue. You have to conclude that cash from around the world is now flooding into the U.S. in an effort to avoid financial uncertainties abroad. But what about uncertainties here?
Negative Interest
Investors generally compare returns from mortgages with 10-year T-bills. What’s the rate for such securities today? That would be negative .3 percent in the short term. How much lower can rates go?
If rates are not going much lower or any lower, than the alternatives are that they remain stable or that they rise. Stability seems unlikely because rates are always in flux, so that leaves us with a good shot at rising interest levels.
If you have an interest in financing or refinancing, now is surely a good time to consider an FHA mortgage with a fixed rate. In the “worst” possible case, if rates go down significantly, you can always refinance. And if rates go up you can sit back and let the lenders worry about it.
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