Interest Rates So Low: Can They Stay that Way?

Interest rates are so low, and have been for so long now, that we buyers might be taking it for granted they’ll stay that way. But that’s not, historically or even logically, how mortgage interest has performed in this country in the past. Today let’s look a little closer at mortgage interest rates so we can predict better whether they’re likely to go lower, go higher, or stay the same in 2013.

A quick perusal of the country’s interest history proves clearly that our current interest rates are far from the norm.

Click over to Mortgage-X.com for a table of America’s mortgage interest rate history, starting in 1947 and continuing through 2008. You’ll see a tremendous ebb and flow in rates,  starting with a modest 1.75% in December of 1947 all the way from a staggering 21.5% in December of 1980, rising and falling to all points in between through the last recorded 3.25 in December of 2008. Today, Bank Rate puts a 30 year fixed at 3.41%.

Historic Low

Basically then, the current rates exhibit  some of the best interest offered to buyers in this country—ever. This graph, compiled with FreddieMac data by ManaUSA.com, provides a visual that shows today’s rates among the most favorable in four decades.

Interest Rates Low

Can Rates Stay This Low?

In a word, no. There are two reasons why I say this:

1)      Interest rates help lenders make a profit. Once the economy has recovered more substantially, lenders won’t have much incentive to “make deals” when they could instead make more money. You have only to look at the history of interest rates to see that current lows aren’t likely to be permanent.

2)      Today’s rates have been forced down by federal intervention. Right now, Freddie and Fanny, both federal agencies, have been buying most loans- they are then the main source of lending for home mortgages. That means they can, and have, set the rates. Those rates are low in response to the flagging economy in general and to real estate’s crash in particular.  Again, once the economy makes clear progress, this artificial control must end.

How Long Will They Last?

Perhaps the Long Island Medium can say for sure, but people without a pyshic power or two have trouble being so certain—even expert people. Bank Rate in fact offers a daily “Expert Panel” feature by which its mortgage professionals predict whether mortgage will go up, go down, or stay the same each week. You’ll note the lack of consensus.

However, there is a tentative agreement circulating the industry that within the next 2 years, we’ll see interest rates climbing.  Some expect it sooner than others: CNBC reported this month that the U.S. Federal Reserve Chairman, Jeffrey Lacker expected economic growth to average “about 3 percent next year, providing enough impetus for the central bank to come off its long-running zero-interest-rate policy and return to normalization” by the middle of 2013.  But others don’t expect the rate hike so soon. “Ben Bernanke and the balance of the Open Market Committee, which has pegged 2014 as the earliest it would start boosting rates.”

In either case, no one thinks today’s rates will go on eternally, which leads to one certain conclusion: If you can buy now, you’ll enjoy historically low interest rates. And that, readers, is a pretty sweet thing to be certain of.

Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert