Mortgage Rates Are Lower Today Than They May Ever Be Again

Ignore everything you think you know about the current state of mortgage rates. If you're waiting to buy a house until they return to their lows from two years ago, then you could be renting for the rest of your life.

In behavioral finance, this is known as anchoring. This concept "draws on the tendency to attach or 'anchor' our thoughts to a reference point -- even though it may have no logical relevance to the decision at hand," explains Albert Phung, a writer and analyst for Investopedia.com.

The examples of this are legion. A study made famous by the book Predictably Irrational examined whether college students would pay more or less for a bottle of wine after being asked to write down the last two digits of their social security numbers. As you may have guessed, those with higher numbers indicated a willingness to pay more.

While this doesn't translate precisely into the mortgage-rate realm, it nevertheless demonstrates how a largely irrelevant number can influence our day-to-day decisions. And it's this point that holds true when you look at the 3.4% rate on 30-year conforming mortgages that prevailed at the end of 2012.

In short, those rates were an aberration. They were the result of a highly unusual type of monetary policy, known as quantitative easing, used by the Federal Reserve to revitalize the economy. And, more importantly for present purposes, the central bank is now easing the economy off this stimulus.

The net result is that mortgage rates remain lower than they may ever be again. This isn't to say they won't drop by a fraction of a percent over the immediately foreseeable future, but the general trend is up, and any small and temporary dip will be just that -- small and temporary.

You can see this in the chart above. Since the high inflation of the 1970s, long-term interest rates have been on a steady descent. They bottomed out in the years after the financial crisis, and it seems likely there's only one direction for them to head going forward.

I, of course, could be totally wrong on this. But even so, there's simply no question current mortgage rates are still fantastic and highly favorable to homebuyers. Borrowing at 4.4% was unheard of until only recently, and it soon could be again.

Buying a home isn't the only tax "loophole" Uncle Sam is giving you
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2907668, ~/Articles/ArticleHandler.aspx, 7/28/2014 4:43:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement