Mortgage rates roughly track the direction of the 10-year Treasury note. The yield on the 10-year note has generally fallen since mid-August.
Low rates have provided a lifeline to the housing market throughout the last few months, as it has helped to ease affordability concerns among buyers. Mortgage applications for home purchases are up 9% from a year ago, according to the Mortgage Bankers Association.
“While there has been a material weakness in manufacturing and consistent trade uncertainty, so far, the American consumer has proved to be resilient with solid home-purchase demand,” Freddie Mac said Thursday.
This week’s uptick in mortgage rates represents only the 10th instance in which rates have increased on a week-over-week basis this year. And increases could continue to prove to be a rarity in the weeks and months to come, based on the Federal Reserve’s decision-making.
The Federal Reserve is still expected to slash the benchmark interest rate by 25 basis points at the end of the month, despite signs of a pickup in inflation. Some analysts are now predicting that further interest-rate cuts could come down the pike, driven by concerns tied to trade and the global economy.
The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet…..
Of course, Trump likely was not talking about mortgage rates specifically when he made these comments. But what would happen to mortgage rates if the country’s benchmark interest rate dropped below zero?
Denmark provides us with a clue. The Scandinavian country’s Jyske Bank began offering a 10-year fixed-rate mortgage at negative 0.5% last month. Another bank, Nordea Bank, meanwhile, has offered Danish home buyers a 20-year fixed-rate mortgage that charges no interest.
But a negative-rate environment wouldn’t be great for the U.S. housing market. For starters, it could drive people toward riskier methods of saving, since bank deposit rates would also be negative in such a scenario. Lenders would become stingier with the loans they offer, as it would be costing them money to make loans.
Home prices would also be expected to go up in such a low-rate environment. That’s what’s happened in Denmark. Given that many would-be home buyers are already priced out of the market today, a further increase in prices would aggravate that situation, no matter how inexpensive loan repayment became.
Even if the Fed does at some point push its benchmark rate into the red, it would be a while before such a low rate showed up in the mortgage market. It took seven years in Denmark.
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