The Costs are Outweighing the Benefits
We’ve stated that the benefits of low interest rates have run their course. We hold to our contrary opinion that low rates are actually hindering more than helping markets these days. Consider the mortgage market: Even though mortgage rates are dwelling in the basement, fewer people are applying for mortgages. The MBA reported that purchase activity declined 1.2 percent to the second-lowest level since 1997 last week, while refinancing activity slid 7.3 percent from its May 2009 highs.
The Federal Reserve’s low-rate policy is hardly inspiring confidence. “Rates must be low because the economy is circling the drain,” so the man-on-the-street rationale goes. It’s the wrong message to send, because promoting risk aversion also means promoting inertia. Risk-averse markets are simply less willing to engage in riskier, but worthwhile, economic activity.
This risk-averse sentiment is readily reflected in the capital markets, where the relatively non-productive assets of gold and Treasury securities continue to be the investments of choice. That’s unfortunate, because we’d all be better off if there were more investment in the very productive (though riskier) assets of home purchases and renovation and mortgage lending.
If you enjoyed this post, subscribe to the Author's RSS feed or the Blog's RSS Feed!
Comments
3 Responses to “The Costs are Outweighing the Benefits”
Leave a Reply
-
Our RSS Feed
PruCalVoices RSS Feed
Get Email Updates
-
Join us on Facebook
-
Join us on Twitter
-
Recent Posts
- California Prop 90 Update!
- Brisbane – Missing the Boat…
- Now is the time to pay up to trade up
- 12 Hidden Costs of Homeownership
- San Bruno Music in the Park 2010
- To Some Low Interest Rates are Better than the iphone 4
- Loan Modifications – They Can Be Done! Lots of Patience Required!
- Funny Real Estate Jargon
-
Categories
-
Archives
Rates are fantastic! People need to take notice!
Thanks, Dean!
Another interesting analysis!
Brian
never thought of it that way. I do think if rates jumped up for a bit more people would take advantage of the lowest rates in 50 years. I find the young buyers do not understand the impact rates have. They have grwon accustomed to low rates for the last 5 years plus. I tell some of them that the 0′s are not that far past and we had 18% rates. In comprehensive.