For those considering refinancing their homes, Real Estate Center Chief Economist Dr. Mark Dotzour says there may not be a better time than the present for many years to come.
“Inflation is clearly rampant all over the world, including in the United States,” he said. “When inflation is a problem, mortgage rates go up. Rates probably should be much higher right now, but they aren’t.”
Why are rates so low when inflation is not a fear but a fact? Dotzour says the fear of a global collapse of the banking system is greater than the fear of inflation for the world’s bond investors.
“Wall Street has a name for the phenomenon, and it’s called the ‘flight to quality.’ When investors get concerned about global conditions, the United States is the haven of safety,” Dotzour said. “As investors moved money into U.S. Treasury bonds, the ten-year treasury rate dropped from 5.3 percent in August to 3.7 percent today.”
Dotzour said investors who are using U.S. treasuries as a safe haven are willing to accept a 3.7 percent interest rate even though the U.S. inflation rate is at 4.1 percent.
Once the banking system is repaired and the fear of global collapse of the banks is over, Dotzour predicts treasury rates and mortgage rates will move up, maybe substantially.
“If you believe that we are in for a global financial collapse, then don’t refinance yet because interest rates will continue to fall,” he said. “If you think the U.S. government and the central banks around the world won’t let this happen, then now is the time to get a fixed-rate mortgage at rates we haven’t seen in the past 40 years.”
Source: Real Estate Center