Record Low, Then Another, Then Another, Then…

The news regarding mortgage rates almost has become passé. Nearly every week this summer, Freddie Mac has announced that one of the mortgage rates it tracks has hit a new record low. According to its Primary Mortgage Market Survey, 30-year, fixed-rate mortgages are sitting at 4.44%! While the housing market certainly remains muted, according to some experts, the low rates are helping generate sales activity that would not be happening without these incredible rates.

At the Federal Reserve’s latest Open Market Committee meeting, the Fed noted that the economy is still on a recovery path, but that the rate of recovery is slowing. Many market participants were pleasantly surprised to see a change in the Fed’s policy announcement. Over the course of the last year, the Fed has acquired a massive holding of mortgage-backed securities (MBS) and Treasury debt. Up until this point, the Fed has simply collected the payments on these instruments. The Fed has now decided to begin using the collected money to purchase more government debt. While this will not have the same impact as the recent $1.5 trillion campaign, it will make some impact. Ultimately, this should help maintain ultra-low interest rates for a while.

Low rates have certainly become the norm over the last few years, as the economy has struggled. At this point in time, it is highly likely that we’ll be seeing low mortgage rates for quite some time. Even a few months ago, the economy looked as if it was going to claw its way back. Now the picture is not as certain. One of the biggest challenges is that this recovery has been driven by growth in manufacturing. However, manufacturing is beginning to lose steam. Until we see consumers spending again, the economy will remain sluggish. Of course, the big key to consumer spending is jobs. If the fall brings us good news on the labor front, we’ll see rates beginning to tick upward. Otherwise, more and more record lows will be recorded.