Mortgage rates have been pretty volatile recently and you, like me, my be wondering what is causing this fluctuation when the federal prime interest rate remains so low.  I asked the experts to explain it in real terms and here is what I found out.

The US Government has committed to spend $4+ trillion to fix our economy.  Of that $4 trillion, they must sell bonds by September 30, 2009 worth $2 trillion.  Unfortunately, sales have been slow because the buyers of these bonds are concerned about the following:

1. The ability of the US economy to support this high supply of bonds ($2 trillion now and an additional $2 trillion budgeted to sell during 2010)
2. The value of the bonds – they are fixed rate investments and at some point inflation will creep in and erode the value of the return
3. The investors have enough exposure to the US and are requiring a higher yield to buy the bonds and that makes interest rates rise
4. The Russian government recently sold a portion of their interest in US bonds and are now purchasing European bonds instead.   Russia is the 4^th largest purchaser of bonds in the world.  Other countries are expected to follow suit.

All of this concern internationally should encourage our government to restrategize; however, our government continues to pour more money (in denominations of hundreds of millions of dollars) into more parts of the economy – ie, banks, auto companies and now health care.

Interest rates will most likely not come down in the near future and may continue to rise. 

What is the good news you might ask yourself, well, if you look at rates over the past 30 years, rates in the 4’s and 5’s are unbelievably low.  Even rates in the 6’s are historically low as well, so it is still a great time to purchase a home or business.  Additionally, home/business prices are historically low, so in additional to affordable mortgage rates, you can enter ownership pretty close to the bottom – which is what every investor tries to time!

If you are interested in purchasing or selling your home or business, please contact me for a no obligation, complimentary consultation (713) 515-2135.