Tuesday, August 09, 2011
One of the forecasted fears of a downgrade in the credit rating of the United States was that the rate of interest the country had to pay to borrow money would rise. Because so many consumer loans, from houses to cars to tuition, have interest rates tied to the US rate, any rise in the latter would also increase the former. Well Standard and Poors downgraded the US credit rating the other day and there were immediate economic consequences. The stock market plummeted but investors rushed to US Treasuries. Even with a reduced rating, they still are the safest investment around. And following the laws of economics, with more people buying Treasuries, the interest rate on them went down and so did interest rates on many consumer loans. The weekly average for a 30 year fixed rate mortgage is now an incredibly low 4.39%. Yesterday an attorney told me he was aware of a regional lender offering the same loan for 4.125%. But as this story in today's Washington Post explains, these low rates may only be temporary or, even if sustained, might not be of too much help. Neither consumers nor businesses are optimistic about the state of the US economy and since so much of the housing market is dependent on perceptions, the very low mortgage interest rates won't by themselves spur a recovery in real estate.