Mortgage loan rate rise threatens … everything
Dec 2010 10

Mortgage loan rates have risen during the past six months off their all-time lows. Still under five percent, the rise means that fewer and fewer people will refinance their loans, reducing financial activity when our economy can least afford it. Meanwhile, rising rates may crimp plans of millions of Americans who hope to buy homes while the inventory is high and prices low.

Behind the rise in interest rates is … wait for it … the government. (To be fair, they were behind the decrease in rates, too!)

Because the government’s leadership (read: President Obama and the US Congress) believes that the way to get our country back on track (or, at least, to keep the peasants from revolting) is to increase spending while lowering taxes at the same time. While this is good for you and me in the short-term (lower taxes means more money in our pockets) the medium-term and long-term results of this are far and wide.

Mortgage loan rates tend to trend along the same as 10-year Treasury Notes. Those have been going up. The US government will find it more-difficult to issue debt to pay for its deficits because bond-traders and holders will want more of a return on their investments – one, because they might actually fear default by the US government (still, unlikely) and because the bond market is full of municipal bond and corporate bonds paying similar rates of return.

It continues to be true: the housing market is a trailing indicator in this recovery versus a leading one in earlier recessions. At some point, you have to assume the American homebuyer will get back in the game and start making offers.

At this point, it looks as though that will be next year. In the spring, we can only hope!

More on this: Mortgage rates, at Six-Month High, Threaten Refis and Fed – The Wall Street Journal

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