Current mortgage rates under pressure from multiple sources
March 15, 2011
Current mortgage rates are back below 5 percent, after rising above that mark for the first time in months in mid-February. If you are interested in buying a home or refinancing your mortgage, don't look at this as a return to normal - current mortgage rates represent a low cost of financing that may not be available much longer.
Mortgage rates this low have been rare over the past forty years, but there is more than just the weight of history working against current mortgage rates--two much more dynamic forces could push those rates higher.
Turmoil in the Middle East
One reason that mortgage rates have been so low is that inflation has been unusually low over the past couple years. Inflation has been showing signs of perking up, and with turmoil in the Middle East now driving oil prices sharply higher, this inflation pressure seems likely to grow.
Right now, the conflict is focused on Libya, but there is much more at stake than Libya's relatively small share of global oil supplies. The wave of popular uprisings has been a true domino effect, starting in Tunisia, then toppling Egypt's government and now threatening Libya's. In many respects, these revolutions have been positive developments, but if this unrest spreads to bigger oil-producing nations - and if the conflict gets ugly, as it has in Libya - disruptions to the oil supply could get more serious.
This would bring another form of domino effect--higher oil prices would trigger higher inflation, which in turn would trigger higher mortgage rates.
A regulatory threat to current mortgage rates
The other threat to current mortgage rates is from a much more mundane source. Attorneys General from all 50 states have joined in an ambitious proposal to settle prosecution of mortgage servicing malpractice by a number of financial institutions. The proposal is so sweeping that while it might help home owners with current mortgages, its costs could severely tighten the mortgage market in future.
In short, you can't get complacent about current mortgage rates. The financial environment is just too dynamic to expect them to remain stable for long.
