4 percent or maybe even 3 percent? Too ridiculous to ponder?
Mortgage rates may slide more
denverpost.com
The 5 percent home loan arrived last week, the lowest mortgage rates most people can remember.
For all anybody knows they may fall lower still.
How about 4 percent or maybe even 3 percent? Too ridiculous to ponder? Not anymore.
"I can't believe I'm saying this, but I actually see strong potential for rates going lower," said Tim McDonald, a regional vice president at the mortgage division of Wells Fargo, who is usually more conservative in his forecasts and says he was surprised by last week's news.
Interest rate forecaster Robert Bush, founder of Englewood-based ERIC Forecasting Publications, says we may soon look back at 1980s and 1990s as an aberrational period of high interest rates.
In the past century, long-term interest rates didn't rise above 8 percent until 1977. To those of us who are 55 and younger, today's rates may seem like record lows, but to analysts like Bush, who take a long view, they are finally back to a more normal range.
"Interest rates are at the lowest they've been in 40 years, and people think they just can't go any lower," Bush said. "But there's no reason why they can't fall lower."
Long-term interest rates in Japan are essentially zero. And U.S. Treasuries keep slipping lower in an economic slump where the demand for borrowed money is increasingly on the wane as many businesses find themselves with too much production capacity.
The average rate on a 30-year fixed-rate mortgage hit 5.34 percent last week, the lowest Freddie Mac - one of the nation's largest buyers of mortgages - has ever seen.
Freddie Mac has been keeping records only since 1971. By another count, Federal Housing Finance Board statistics record the previous record at 5.83 percent in 1963, when John F. Kennedy was president.
The 30-year mortgage was at 6.81 percent a year ago, which seemed cheap to many then.
If you had borrowed $269,000 - the average price of a home in the metro area - your monthly payment for principal and interest would have been $1,755. If you refinance now at 5.34 percent, your payment will drop to $1,500, giving you an extra $255 in monthly cash flow.
And if that's not enough, there are cheaper loans. The average rate for a 15-year mortgage is 4.73 percent, down from 6.28 percent last year. And rates on one-year adjustable-rate mortgages dipped to 3.61 percent.
For those waiting to lock in an interest rate on a pending loan, here's one caveat: There's really no predicting where interest rates will be in the short term, because the rates fluctuate daily. But the longer-term trend appears to be down, many economists say.
The opportunity to refinance has banks and mortgage companies hopping again.
"We have seen a tremendous surge in our business," said Wil Armstrong of Cherry Creek Mortgage, one of the largest locally owned mortgage companies.
"Everybody who has done a loan in the last week can come back and be in the money again (on an even lower rate)," he said.
Interest rates are falling because Federal Reserve Chairman Alan Greenspan is talking them down. He recently declared an end to his decades-long war on inflation and hinted that deflation may actually be the enemy to fight now.
As the cost of borrowed money falls, consumers will find themselves more inclined to do what they do best - spend. And that will support the flagging economy, Vectra Bank Colorado economist Jeff Thredgold said.
"Consumers represent 70 percent of the economy," said Thredgold. "Anything we can do to improve their monthly cash flow is a positive thing."
Denver Post business editor Al Lewis' column appears Sundays. |
