Fed Raises Prime, Mortgage Rates Go Down
Despite the Federal Reserve’s recent increases in short term interest rates, the bond market has continued to be strong and mortgage interest rates have continue to remain at their record lows. Why?
Some reports indicate that baby boomer investors have consistently been choosing bonds over stocks as a safe investment. In the US, Europe and Japan, those reaching retirement age are buying longer-term treasuries, from 10 to 30 year bond notes. The result, an inverse movement of increased prices and lower yields.
Since bond prices and yields are the driver for mortgage interest rates, mortgage rates have continued to creep downward even as the Fed’s rate went up. Should this investment trend with the baby boom generation continue, mortgage rates could drop even more. David Rosenberg, Merrill Lynch’s chief North American economist considers this trend as having “already started. It’s a global development.”
For those of us that bought our first houses when mortgage rates were in the double digits, this is difficult to imagine. However, Stephen King of HSBC Holdings Plc in London reports, that baby boomers are “more likely to be interested in avoiding capital losses than making capital gains, pointing to a wholesale shift out of equities into bonds.”
All that being said, it seems that the fears and predictions of mortgage rates shooting back into double digits by the end of the year may have been premature.