Good morning: I read a very interesting article this morning that talked about how the difference between the 10 year treasury note yield and mortgage rates is currently at 2.5%. In a normal market, the difference would be 1.75%. With mortgage rates currently right around 5%, is it possible they may dip as much as .75% lower if lending conditions improve? I think so.
Right now the big lending institutions are trying to see if there is a normal market for paper money as opposed to the government having to guarantee everything. For all practical purposes the free market seized up in August 2007 (for more information there is an excellent Bloomberg article on this). Now, on a limited basis, the large financial institutions (think G.E. Capital, for example) are auctioning off commercial paper to see if there's a market.
I was on the phone with a long time business contact of mine the other day and he said he thought we might see mortgage interest rates close to 4%. He's been in business a long time and has often been right. Again, it appears the government along with financial institutions are doing everything possible to jump start our real estate market and the economy.
If there is a swing toward lower rates, I expect it in 60 days or so. I don't know about you but I still have quite a few fence-sitters looking to refinance if rates touch 4.5% or better. Of course we're all hopeful we'll come out of the downturn we're in. This just might be the catalyst we've been looking for. Of course we're also all eternal optimists! Have a great day.
Paul McFadden
I agree with your friend. 4% will be a reality in the not to distant future. I only hope that it stays around long enough to get investors into the market place. I wrote an optimistic blog about this last week. Check it out at http://activerain.com/blogsview/893411/President-Obama-Lower-Interest-Rates-Please
Simon: Thank you. It could just be the pick-me-up all of us need!