25 Feb Low Rates to Continue?
Larger than originally expected fears of the Coronavirus continue to impact the global economy driving down the stock market. Yesterday, the Dow Jones Industrial Average closed down more than 1,000 points, a single day loss of more than 3.5%. With stocks around the world plunging, many investors are seeking the safety of the bond market which is continually pressuring mortgage interest rates lower. With the 10-Year Treasury Note yield now just above all-time lows, this is a historical moment. I continue to believe that slower economic times are ahead and that low rates will be around for a while. Although good news for those looking to refinance their mortgage, it’s not good news for the overall US and global economies.
As we head into the November elections, many are trying to predict what will happen to mortgage interest rates under each of the two party’s leadership. I believe rates will do well regardless of which party wins. Let’s take a deeper look.
Under President Trump, we have seen unprecedented levels of government spending. If the Democrats win, we can expect to see government spending continue to climb. As the national debt continues to climb higher, mortgage interest rates will be pressed down. Think of this from a family budget perspective. As the debt load increases, a greater portion of the family’s monthly disposable income is required in order to service the debt. Because the family decided to enjoy something at the moment and pay for it in the future, the economy got the benefit at the time of the purchase. Paying back the debt means fewer purchases going forward, as more cash is now spent on interest and paying back the principal.
So, regardless of which candidate wins the election, I see low rates sticking around a while. Not necessarily this low, but reasonably low.
I fear that we could see a short term correction in the markets. Now is a great opportunity to secure a near record low mortgage rate.