Current mortgage rates are hampering government efforts for economic recovery. Following a drop in mortgage rates early this spring, potential buyers have been pushed away by rising numbers. The Feds announcement in March to buy more than $1 trillion in mortgages from Fannie Mae and Freddie Mac helped push down borrowing rates. Now with a rise in Treasury yields, these efforts are being scuttled.
As U.S. deficits grow the demand for Treasuries is falling off, with nervous investors demanding higher yields. Yields on benchmark 10-year Treasuries hit nearly 4% in this week's sale, amidst news that Russia was considering swapping a portion of its $401 billion in international reserves from U.S. dollars to IMF bonds. Any attempt at controlling mortgage rates will be fruitless if the Fed can't curtail the rising yields on Treasuries.
Purchasing power of potential borrowers has dropped an estimated 10% in recent months as mortgage rates skyrocketed heading into summer, according to Mark Goldman, a real estate lecturer at San Diego State University. Goldman and others in the real estate industry say they aren't expecting any significant improvements in the housing industry until after 2010. Though rates aren't astronomical as of yet, the percentage points at which they are climbing are making everyone weary.
A growing national deficit is a main contributor to rising Treasury yields. According to the Business Roundtable's Housing Working Group, a group made of up top CEO's from across the country, keeping mortgage rates low is the key to economic recovery. This week the group encouraged the government to expand a tax-credit incentive for first-time home buyers. The issue with this measure is, that unless money is cut elsewhere in Washington's budget, the main problem won't be solved, that being the growing national deficit.
China, Russia, and others have warned Treasury Secretary Tim Geithner that current U.S. policies are becoming unnerving. The countries have accused the U.S. of merely printing money as needed and worry what a U.S. deficit growing at record paces will mean to their own economies. Though it may seem odd, these nations, with massive amounts of U.S. debt-holdings, do have an effect on domestic mortgage rates.
Health care reform is becoming the topic of discussion for the summer in Washington. Politicians raising concerns of introducing more debt are correct in doing so. Lowering mortgage rates is heavily dependent on creating a more balanced national budget. With deficits growing and demand for Treasuries dropping, yields will be forced higher. Current mortgage rates are likely to change, and not for the good of potential home buyers.
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