Mortgage interest rates have plummeted since the same time last year and are resting near record lows. On Friday, September 6, 2019, the 30-year fixed mortgage rate clocked in at 3.48%, while the stock market was close to a record high of over 26,900. In comparison, over the last 30 years, the same mortgage rate has averaged about 6.25%. In the last 10 years, the only 2 times that the rate has been lower was in September 2016, with a low of 3.42%, and in November 2012, with a low of 3.32%.
 

What is the current state of the US economy?

· The US is not in a recession.

· The economy grew at 2% in the second quarter.

· Unemployment is near 50-year lows at 3.7%.

· Wages and personal consumption have accelerated.

That’s all great news and speaks to the current strength of the US economy. While the prolonging of the current trade war is likely to impact US exporters and consumers through higher prices, Trump's reelection prospects are inextricably tied to the stock market and he will do everything possible to keep the Dow as close to 26,000 as possible. Accordingly, any weakness because of the trade dispute between the US and China will be solved in the near term. 
 

Why are mortgage rates so low?

· A US government bond rally fueled by concerns about the global economy has contributed to artificially low long-term US mortgage rates. 

· European and Japanese Central Banks have been trying to fight their economic woes with zero or negative interest rates, causing investors to search for yield elsewhere. Currently, Europe's key interest rate is -0.4%, a repellant for many! 

· According to Deutsche Bank, 25% (or $15 trillion) of government bonds worldwide now trade at negative yields. This is a ridiculous number and has nearly tripled since October 2018, only one year ago. 

· US government bonds, in contrast, offer positive returns making them very attractive to foreign investors.

· An increase in foreign demand for US government bonds has pushed down the 10-year treasury rate, and ultimately the 30-year fixed mortgage rate, which has a symbiotic relationship with the 10-year treasury rate.

· At the beginning of August, rumors that the ECB would embark on a shock-and-awe stimulus on top of the already negative interest rates, liquidity facilities, and QE that they implemented, have pushed even more investors into the arms of the US, as they ramped up government bond purchases, ultimately further lowering our long term mortgage rates.  

We've seen this play out before:

· Above, we noted that the last trough in rates was in 2016, which was caused by investors fleeing European investments after Great Britain voted to leave the European Union.

What does this all mean?

It is unlikely rates can go much lower, as we are already near historic lows. We are, therefore recommending that our clients refinance now or finance their new property purchases to take advantage of this artificially low mortgage rate phenomenon before it's too late. 
Note: The chart above depicts the 30-year fixed mortgage rate for US persons or permanent residents. Foreign buyers who obtain mortgages from a retail bank usually pay an additional 1/2 point.