As the country braces for the Congressional Super Committee to announce defeat on deficit reduction negotiations today, mortgage rates remain near all-time lows.
It’s impossible to know what will happen to rates as a result of the Super Committee decision, or lack there of today, said Roy Clennan, founder and CEO of Colorado Springs-based Freedom Financial Services.
During times of economic uncertainty, more people tend to pull their money out of the stock market and invest in treasury bonds, which has historically driven interest rates down.
“It used to be that there was a direct link between the 10-year treasury bond and mortgage rates,” Clennan said. “But the last six to 12 months, there’s no correlation at all.”
In fact, many of the governing principles for predicting interest rates have fallen by the wayside.
When Congress got stuck in negotiations to raise the debt ceiling this spring, Standard & Poors reduced the nation’s credit rating, which would normally have driven investors away from bonds, made it more difficult for the country to borrow money and led to a steep hike in interest rates.
But that didn’t happen. Rates fell even lower as more and more Americans invested in treasury bonds.
This new stalemate in Congress has the world wondering how markets will react. If the conflict can’t be resolved swiftly, national news speculators say the S&P could further reduce the country’s credit rating.
“You would expect that if the credit rating was downgraded the rates would go up,” Clennan said. “But that hasn’t been the case. The Fed has kept the rates down and there’s still huge refinancing activity.”
Federal Reserve chairman Ben Bernanke announced this summer that he would keep interest rates near 0 percent until mid-2013.
Clennan said his office has been busier than ever handling refinancing deals in recent months.
“I don’t know that we’ve ever been lower than we are right now,” Clennan said of mortgage rates. “This is just an amazing time. And it’s a great time to buy because housing prices are low.”
He said the value he’s seeing new clients get in the housing market is astounding. The same house today costs a fraction of what it did two years ago and with low rates, payments are hundreds of dollars lower.
“Housing prices around here aren’t going to go a lot lower,” Clennan said, “not unless some really tragic thing happens like one of the bases closes.”
If the Super Committee fails to come to an agreement, mandatory spending cuts, balanced between domestic and defense spending will trim $1.3 trillion starting in January 2013. Those measures could include deep cuts for military spending, which regional experts worry will impact Colorado Springs bases and government contract workers.