Wherever you turn, you can’t help but hear that mortgage rates are at historical lows. Rates for 15- and 30-year loans are hovering around 4.4% and 4.9%, respectively. At first, it was the Fed working to keep rates low via Mortgage Backed Securities purchases. More recently, the Greek and then the broader European debt crisis has resulted in a flocking to US treasuries by investors, putting downward pressure on rates all around.
The million dollar question is just how long low rates will they last. If you take the bearish view on the economic recovery as a whole, in the US and globally, then lower rates are here for a while. We found a certain appeal in the rationality of a recent Morgan Stanley report noting:
Sovereign risk conditions and financial reform uncertainties represent a new paradigm of risk that [has resulted in] risk aversion and an adjustment to discount for crisis-styled risk expectations of slower growth and lower inflation that led to a bull-flattening of yield curves. But we think this will be short-lived as bond markets do not price crisis in perpetuity. Once the risk factors become priced and USD funding costs find a center of gravity and stabilize, albeit at a higher level, then the underlying for forces for risk appetite, higher yields and steeper curves may resume.
Translation: markets won’t price in a crisis forever, leading to higher rates. For now, buyers and owners looking to refinance should rejoice in the continuation of these low rates, at least for the near term.
