Economic uncertainty is the friend of the borrower. The more uncertainty that exists in the world, which has the potential to negatively impact the economy, the more investors seek to put their money in safe investments such as mortgage-backed bonds.
When chaos reigns, bonds get purchased and interest rates fall. This induces more borrowers to fill the demand for additional bond supply. With ISIS, Ebola, Russia’s annexation of Crimea and threats to Ukraine and the recent democracy protests in Hong Kong, economic risks have driven those with money out of stocks and into the perceived safety of bonds. Consequently, mortgage rates for American consumers have dipped to their lowest level in more than a year.
This latest dip was unexpected and frankly was preceded by a slight tick upward for mortgage rates that many believed was the beginning of a long, consistent move higher. Many economists had forecasted that mortgage rates would be significantly higher by this point in the year. But there is no way to accurately forecast events like ISIS and Ebola. What was accurately forecasted is that the US economy is getting stronger and the job market is improving markedly. Those are the ingredients that typically produce higher mortgage rates. Yet, the move downward is proof that we do indeed live in a global economy.
So an opportunity exists for those that simply never got around to refinancing during previous interest rate dips to finally lock-in better terms now. Moreover, for those prospective homeowners who are currently shopping for a home, they now have the opportunity to lock-in historically low interest rates for the long haul.
But make no mistake about it, this opportunity may be fleeting, as chaos in the world has a way of calming down and economic uncertainty gives way to confidence. When that occurs—next week or next month or in the months ahead, we will be back to an environment of strengthening US economic conditions and a Federal Reserve that is no longer artificially holding down interest rates.
For now current mortgage rates may very well be the chance of a lifetime!
Article By Jonathan Coccia of Mortgage Masters
Fairfield, NJ 07004
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Better Homes and Gardens Real Estate | Coccia Realty
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