Usually, when interest rates rapidly rise or fall, there’s some underlying economic situation happening that causes investors to seek haven in safe investments like U.S. government notes and bonds. This will cause interest rates to rise or fall.
Most of these flights of capital are short-lived experiences, but sometimes they can go for a while. That really depends on the individual economic event. But as these events unfold, no one knows how long they will last. So, many advise to take immediate action for fear of missing an opportunity.
Last month, the chairman of the Federal Reserve revealed his long-term outlook based on the impact of the pandemic on the economy. He said he is loosening his targets for inflation, the enemy of interest rates, as he feels the recovery is not in jeopardy. He also said that he doesn’t see any reason in the short-term to raise interest rates. This is great news for borrowers in general as these historic low interest rates will benefit most. The one group unhappy is savers and investors seeking high yields.
Last summer, I wrote how interest rates nose-dived creating a unique financing opportunity. These things don’t happen often and usually are the result of big economic events. Back in 2016 it was BREXIT and last summer was the short-lived Inverted Yield Curve. Now it’s coronavirus.
What’s interesting about this economic event is that it seems to have global implications so the drop in the yield of the benchmark 10-year government bond is the lowest it’s been in over 100 years. The yield as of early September is under .75 percent! Mortgages move in tandem with the 10-year bond, but somehow the banks are dragging their feet in lowering their rates because loan demand is strong so they don’t feel pressure to do more now.
It’s really impossible to give exact rate quotes as there are so many variables that go into the calculations. But for conforming FHA Loans, rates for 30-year fixed mortgages are around 2.8 percent. The 15-year fixed mortgages are around 2.5 percent. If you can afford the payment, you should really try and get a 15-year mortgage. Over the long term, this will save you a lot in interest.
This chart shows both mortgage rates, yields on the 10-year Treasury bond and the Federal Funds Rate, the rate the Fed charges banks, since 2007. One of the reasons your portfolio has recovered is because there really aren’t good investment alternates with rates so low.
Steve Hyman is the broker and owner of Century 21 Sunset Properties. He can be reached at 726-6346 or www.century21sunset.com.