Why are Interest Rates Still Low?

Posted by Alex Narodny on Tuesday, January 27th, 2015 at 2:30pm.

The secret is out. Mortgage Interest Rates have dropped substantially below initial projections. Although the rates have now reached historic lows, buyers are still waiting in anticipation of them dropping further.

Why has the proverbial interest rate Santa Claus given buyers such a long-term affordable gift? The answer is multi-faceted. However, the main contributor is less inflation.

Oil prices are always a good marker for inflation. You may have noticed that filling up your gas tank has also become substantially less expensive in recent months. What’s the correlation? According to NAR, the Fed uses inflation indicators such as oil price fluctuations to arrive upon their weekly rates. By that logic, interest rates and gas prices are somewhat proportional.

No one knows how long these low rates will last. However, as consumers continue to save money from low mortgage payments and low gas prices, consumer spending in other areas will logically begin to increase.  Adding these elective expenditures may have a counter-effect on interest rates.

In conclusion, these low interest rates are basically a honeymoon phase for buyers. It won’t last long. Freddie Mac, Fannie Mae, and NAR all agree that interest rates will rise to between 4.3-5.4% by the end of 2015. Now is the time to make the investment and save some long-term capital.

Alex Narodny



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