Interest Rates are Moderating

Not that long ago, the talking heads on CNBC and other cable shows were talking about the inevitable rise in interest rates. Virtually all were calling for the 10-Year Treasury to be well north of 4 percent by this summer. Mortgage rates were forecasted to head to 6 percent, and like many weather forecasts, these predictions were simply wrong.

Instead of the 10-Year Treasury notes rising beyond 4 percent, rates on the T-bills have been falling. Most mortgage interest rates touched new lows in recent days.

The stock markets are in a state of flux because of worries about the overall economy. Recent numbers on the American economy, along with news reports on the instability on European markets, has led to a sell-off in stocks and a flight to safety. Bonds are considered a safe harbor for money. When bonds do well, generally mortgage rates go lower. So in a depressed stock market, rates trend lower.

New home sales reported on June 23 showed a very steep decline. Sales were down 32.7 percent over the previous month — only 300,000 sales versus 446,000 in April. The year-over-year numbers were also down by a sharp 18.1 percent.

Reasons for the sharp drop in sales are attributed to the slow economy and to the expiration of the homebuyer tax credit. The tax credit enabled buyers of homes to receive tax credits from $6,500 to $8,000. It seems that the tax credit precipitated a front-loading of sales. Some buyers, who would have bought in coming weeks, accelerated their purchases in order to take advantage of the tax credits.

The government lowered its estimate of how much the economy grew in the first quarter of the year, noting that consumers spent less than it previously thought.

The Commerce Department says that gross domestic product rose by 2.7 percent in the January-to-March period, less than the 3 percent estimate for the quarter that the government released last month. It was also much slower than the 5.6 percent pace in the previous quarter.

The good news in the GNP numbers is there have been three consecutive quarters of positive performance in the economy. The economy is clearly climbing out of the recession. The climb may be slow but it is positive.

At its Open Market Committee meeting, the Federal Reserve made no change to its policy language following the June 22 and June 23 meeting, reaffirming that interest rates will remain “exceptionally low for an extended period.” Most economists now think the Fed will keep on hold any interest rate changes well into 2012.

Bill Starrels is a mortgage loan officer residing in Georgetown. He can be reached at 703-625-7355 or by email at bill.starrels@gmail.com.

Comments are temporarily disabled.
Sat, 1 Nov 2014 09:10:13 -0400

Subscribe to our newsletter to receive the latest Georgetowner updates.