Interest rates have been pretty steady for an unusually long period of time, floating up and down within a small window. To track mortgage interest rates we tend to look at U.S. Treasury bonds to measure where interest rates are, because it’s an index where the security and timing of repayment is somewhat similar to mortgages, and because it’s an index that’s easy to track.
But just like the individual stocks that you own might perform differently than, say the Dow Jones Industrial Average, or the S&P, mortgage interest rates do not always track U.S. Treasury bonds. But over time, there is a pretty close correlation.
Well, U.S. Treasury bonds are rallying today, meaning that yields are going down. (Yield is to investors as Interest Rate is to borrowers, so if yields are falling, so are interest rates.)
Why is this happening?
Central Banks* around the world are concerned about a slowing global economy. One of the ways they help goose their own economies is the same way we did for a few years – by buying their own countries’ government bonds. Since this is a global market, when they buy their own bonds they impact ours as well.
According to the Bond Market Report in Marketwatch today, yields have dropped to their lowest rate in five months. More importantly, “Intense central bank involvement in the government bond market will likely keep government yields contained.”
How long? “In that context, strategists expect Treasury yields to remain low even if the Fed hikes rates in the next few months.” (Emphasis added)
This cannot be overstated – even if the Feds raise short-term rates in the next few months, long-term rates that tend to drive mortgage interest rates are likely to remain low.
We’ve been saying for a long time that mortgage interest rates must rise eventually, and that is still true. But the window for low rates has been open much longer than anyone expected, and – if the analysts are right – may stay open for some time to come. This is good news for homeowners that are ready to buy, and good news for the Real Estate market.
To read the full article click here.
* (Central Banks refers to the national banks that provide financial services to their country’s government and commercial banking system, set monetary policy and issue currency)