How Long Will The Low Mortgage Rates Last?

Copyright (c) 2010 John Gough Rasor

Anyone who has kept an eye on the evening news or has read the paper lately has probably noticed that mortgage rates have been near 50 year record lows for the last couple of years. According to Freddie Mac, the average rate for a 30 year fixed mortgage was 5.00% as of May 6, 2010. The average rate for a 15 year fixed mortgage was 4.36%.

Mortgage money is extremely cheap right now, and rates may never be this low again. Of course, much of the public has likely become conditioned to believe the low interest rates are normal. After all, there have been thousands of radio, television and internet advertisements proclaiming "record low" rates for the last several years.

There are several reasons that interest rates have stayed so low for so long. The U.S. Treasury and the Federal Reserve began "manipulating" mortgage rates in late 2008 by purchasing mortgage-backed securities in the open market in an effort to reduce the supply, and thus lower rates. They did this in an effort to lower the borrowing costs for Americans purchasing homes to help buy up the oversupply of properties on the market due to the mortgage crisis. However, this program was recently ended on March 31, 2010, so rates may be going up soon. It was estimated that the government was purchasing more than 80% of the mortgage bonds on the open market.

Also, many other government programs, such as the program to purchase Treasury securities, have kept other interest rates low as well, which has trickled down to mortgage rates.

The fact that many institutional investors have also chosen to park their money into bonds instead of risking it in the highly volatile stock market has also helped to keep interest rates low over the course of the last two years. But many investors are starting to move their money back into other investments, such as stocks and commodities, as the larger investment community seems to feel that a bond bubble may be taking shape.

The fact is that interest rates will not stay this low forever. And consumers that are "sitting on the fence" waiting for the possibility that home prices will continue to fall should consider the fact that higher mortgage rates may negate any possible savings they may get if values do continue to fall. And home buyers in the Dallas Fort Worth area might be surprised to hear that home values have only dropped in their area by a few percentage points compared to 2006, which was the height of the real estate boom. The market is remarkably stable compared to many other areas of the country and many economists feel the likelihood that values will fall much more is unlikely.


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