Mortgage rates at a record low
We know what happened last time mortgages got too cheap, this time they’re even cheaper! After falling off the peak in October, interest rates have dropped for 9 straight weeks to fall to levels not seen since Freddie Mac started surveying lenders to find an aggregate rate for the 30 year fixed mortgage.
The 5.1% 30 year rate is pretty cheap but not as cheap as it could be considering the FED’s lax monetary policy this year. But one thing is certain, lower interest rates are indicative of more money in the banking system and banks wanting to lend. Banks have no option but to begin lending out the money TARP and the Treasury gave them, they’re so far behind on other loans its a deadly scheme to race back to par.
Lower rates are good for both the banking industry and real estate which have both proven to be some of the worst investments of 2008. The FED is looking into buying another $500 Billion worth of mortgage backed securities, which will add billions of dollars to the reserves of banking institutions and allow for a further drop in rates as banks are flooded with cash.
The housing market could easily see a few localized moves up in 2009 as investors will be able to buy up investment properties to rent or hopefully resale. Cheaper money makes the cost of carrying investment properties more economical and more profitable. New home buyers for the first time will enjoy the payments that come from 5% rates, monthly payment shoppers will be able to buy more house too.
All in all the credit problems seem to be going away but there are still plenty of economic issues that need to be addressed.
Lower interest rate will encourage investing and consuming, and this will help the economy, but maybe another economic cycle will come again.