NEW YORK (MainStreet) — U.S. mortgage rates are sliding again, which wasn’t supposed to happen in an improving economy. But several factors, including the unemployment rate, are sending mortgage interest rates back down.
No, the Treasury Department isn’t going to trot out the “Summer Stimulus” this Memorial Day weekend – not when virtually every key economic indicator – namely foreclosures and home prices are heading south.
And while low mortgage rates are good for homebuyers (who consequently pay less in interest on their home loans), they are not good for a struggling housing sector trying get itself back to pre-recession levels.
Here are a few reasons why mortgage rates are going down and will likely remain there awhile:
Lousy unemployment. Low mortgage rates are forged in the white-hot edges of the job market, so if Americans can’t find work, Americans don’t spend money, and that, among other tragic consequences, drives higher demand for safety vehicles like U.S. Treasury bonds. Higher demand for bonds encourages banks’ worst behavior – cutting mortgage rates and deposit rates because anxious investors are pouring more money into the types of safe deposit vehicles (like certificates of deposit) that banks sell.
Inflation has slowed. For the first quarter of the year, consumer prices shot upward, especially gasoline prices, but in the past few weeks prices have stabilized. If inflation had kept rising, the Federal Reserve might have been forced to raise interest rates, which would have likely boosted mortgage rates. But with inflation in check, there’s no need to raise rates.
Housing prices are soft again. Home sales are down, as are home values. That hurts the economy and sends more investors out of the stock market and into the bond market. To get more people into the housing market, lenders need to soften mortgage rates to boost demand.
Global investors are fretting about Greece. In early May word came from overseas that Greece would withdraw from the Euro-zone. Global investors were already troubled about Greece’s toxic debt picture, but a currency retreat only adds more instability to the Greece picture, and that sends investors to safer money vehicles, which is what happened in the first two weeks of May. Not surprisingly, mortgage rates fell at the same time.
Economists believe the economy is slowing. Expectations play a huge role in the movement of mortgage rates. With more and more economists going on the record that the economy is losing momentum, lenders and creditors also have to reduce mortgage rates to overcome negative expectations. That drags interest rates down.
The good news is that if you’re in the market for a new home, mortgages have gotten cheaper. The BankingMyWay Weekly Mortgage Rate tracker checks in at 4.79% this week – low by any historic measure.
It looks like those low mortgage rates will be around a while – as long as the economy remains soft.