After the economic crisis and economic collapse of 2008, the economic system has recently created split personality. The Federal Reserve implemented a nil monthly interest plan (ZIRP) in Dec 2008, establishing a Federal Funds Rate target which is between zero and 0.25 percent or a mere Twenty five basis points. (1) In normal economic circumstances, this would be precariously inflationary, but the Federal Reserve confirmed its public reasoning as coping with deflation. ZIRP has been on-going for two-and-a-half yrs. On Aug 9, 2011, the Federal Open Market Committee reported its judgement to keep ZIRP for a further 2 yrs into mid-2013. (2)
This kind of judgement comes in the middle of not so good news for individuals, savers and retirees in search of income on their money. The return on the benchmark 10-year Treasury note dropped under 2 % for the first time ever on August 18. The 10-year yield fell below 2 % yet again on September 2. (3) As market players obtain more Treasury stock options and mortgage-backed securities, the downhill pressure on rates throughout the market grows. Mortgage rates have taken yet another nosedive in response, driving a further influx of re-financing as indebted house owners make an effort to lower their monthly premiums.
Home loan rates are near record levels, as outlined by Freddie Mac in the 7-day period ending September 1. (4) The housing industry, both nationally and regionally, continues to tank significantly. Data from the Case-Shiller Home Price Index show that the nation’s index decreased 5.9 percent on a year-over-year cycle from June 2010. The 10-city and 20-city indexes decreased by 3.8 and 4.5 percent, respectively, making the current decline the worst since 2009. (5) In this kind of environment, nothing could influence would-be householders from making an acquisition, even record low interest rates. The infamous tax credit that run out in April ’10 merely moved sales and profits around and couldn’t affect the bigger market trend.
Interest rates on mortgage loans will continue really low for the following 2 yrs, barring some sudden situation that pushes interest rates up in general. Refinancing will continue with unexpected spikes in activity stimulated by unforeseen dips in loan rates. Beleaguered homeowners not have any solution but to stay put. The divided personality of the economy, low interest rate world with massive debts, houses oversupply and rising share prices, portends bad news for purchasers. Homebuying activity will likely not return to just what it was for quite a few years to come.
Tags: 10 Year Treasury, Case Shiller Home Price Index, City Indexes, Economic Circumstances, Economic Collapse, Federal Funds Rate, Federal Open Market Committee, Home Loan Rates, Home Price Index, Housing Industry, Index Show, Interest Rate, Low Interest Rates, Mortgage Backed Securities, Mortgage Broker, Mortgage Lenders, Mortgage Rates, Nosedive, Open Market Committee, Rate Target, Split Personality, Treasury Stock, Year Treasury Note, Zirp