How Long Can Rate Stability Last?
The significant thing in mortgages this week wasn’t what had changed, but what had stayed the same. 30-year mortgage rates posted their fourth consecutive weekly reading within a range of only 0.03%.
This stability was not because of a lack in economic news. Among the prominent developments:
- High-ranking government officials, including Treasury Secretary Henry Paulson, continue to issue increasingly more somber pronouncements about the economy
- After a brief respite, oil and gas prices once again surged to new highs
- Meanwhile Congress and the White House continued to debate over how far mortgage relief measures should go
Indeed, considering the amount of economic news, the fact that mortgage rates remained unchanged was not because there were no new developments, but more because conflicting developments essentially fought to a standstill.
For mortgage shoppers, this meant good news — additional time to think and act while mortgage rates are still at uncommonly low levels.
Inflation vs. Recession
In some ways, recent economic news has taken on the character of one of those cheesy, 1960s horror movies, where two monsters from previous films are pitted against one another. This time, instead of Godzilla vs. Mothra, we have inflation vs. recession battling for predominance.
As far as interest rates go, inflation tends to push them higher, while a recession tends to bring them down. This probably explains why mortgage rates have remained so little changed in recent weeks. As persistent as inflation indicators have been, signs of a slowing economy have been equally relentless. Conventional wisdom seems to be that a recession would take the edge off of inflation by cooling global demand, though at the cost of jobs and incomes.
So, for the time being, the two villains have cancelled each other out, at least as far as the mortgage market is concerned. Still, the real danger in those old horror flicks was when the two monsters joined forces to gang up on the population. In economic terms, this would mean recession and inflation occurring at the same time. This is what we had in the 1970s with “stagflation”, and it led to the biggest run-up in mortgage rates in U.S. history.
But Who Would They Be Helping?
Meanwhile, Congress and the White House debate how much help should be given to people struggling to meet their mortgage payments. While mortgage relief sounds good in theory, the simple fact is that it would help a small minority of people while potentially hurting a much greater number. Anyone who is struggling to avoid foreclosure should, by all means, go ahead and root for sweeping government mortgage relief. However, anyone who is shopping for a mortgage, or has a mortgage they might someday want to refinance, should be aware that the more it costs to bail out troubled mortgages now, the more future mortgages are likely to cost.
These Might Be the “Good Old Days”
In short, while it may seem like mortgage news over the past year could not have been worse, the truth is that mortgage rates have arrived at very attractive levels. Meanwhile, there are plenty of forces out there that could drive rates higher in the future, meaning that the present might turn out to have been the best time to be shopping for a mortgage.
Tags: foreclosure, interest rates, mortgage, mortgage rates, recession, refinance, stagflation
