How low can they go?……Again

Thought the 30-year fixed rate mortgage couldn’t get any lower? Think again! Last week another record low was announced, making this the sixth consecutive week of “record” low mortgage rates. Only a month ago we were boggling over the 3.83% record low, but each week since the rate continued to drop in what has become the greatest decline in mortgage rates… ever! Now the latest record has plummeted to an unprecedented 3.67% on a thirty-year fixed rate, and a mind-blowing 2.94% on a 15 year fixed. As one market analyst interviewed by CNN  said, “We have never seen rates this cheap.”

As we previously reported, mortgage rates are traditionally linked to the 10-year Treasury note. As the government bond’s yield has continued to decline, so have mortgage rates. The latest decline is attributed to the recent downward revision of economic growth. May’s job creation numbers are posted at a depressing 69,000, less than half of what economists expected. This prompted the unemployment rate to rise for the first time since June 2011 to 8.2% – up a tenth of a percent since April. On top of May’s disappointing numbers, revised reports show job creation from March and April to have been 49,000 less than originally estimated.

Again, the sharpest job declines are found in the public sector, and government cutbacks killed another 13,000 jobs in May. The Private sector’s meager 82,000 job increase did little to absorb those losses; the total average job growth of 69,000 doesn’t even keep ahead of the population increase, much less the tremendous backlog of unemployed workers. The underemployment rate – comprised of workers in part-time and other positions insufficient to meet their financial needs – also rose to 14.8%. These numbers show how the nation’s employers are still hedging their financial bets with cheaper, more easily disposed of part-time and temporary labor rather than investing in full-time employees. It’s a vicious circle: when the economy is down, people have less money, companies see fewer demands, and therefore hire less – putting less money into the economy and into people’s pockets!

The stagnant U.S. economy is linked to the continued struggles of the European economy, the slowdown of the Chinese economy, and the looming financial battles held in Congress’ partisan deadlock. Without financial influx from other sources (with, in fact, a financial drain from said sources) there seems no end in sight for the economic slump we’ve been struggling under for the past several years. May speculators look to the upcoming presidential elections to spur growth, hoping to ride post-election optimism and the political settling of a new 4-year term of leadership into a firmer economic future.

One consequence of the continued economic decline is this snowballing decrease in mortgage rates. Combined with the lowest home prices since mid-2002, the housing market actually seems to be stabilizing despite the tight financial landscape. While homes aren’t metaphorically “flying off the shelves,” home sales are showing a modest increase over previous months. While previous increases in sales have been attributed to investors, the National Association of Realtors is proclaiming the beginning of true recovery, as normal homebuyers resume normal home buying activity. These buyers are credited with the stabilization of home prices and even increases in some popular markets.

The combined news of economic downturn and housing upswing may leave many with mixed feelings, but one thing is fairly certain: as long as mortgage rates continue to plummet, there will be some homebuyers ready to reap the long-term benefits of homeownership under the lowest mortgage rates on record.

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About The Author: Geoffrey Thompson is an owner and founding partner of Colibri Real Estate, LLC. Since 1996 the companies under this banner have offered online real estate licensing and insurance licensing courses as well as online real estate exam prep and insurance exam prep.