Interest rates remain low as economic concerns persist

By Pete Southern in LiveWire Economics Blog | August 27, 2010 14:15 |

National average mortgage rates remain historically low and there appears to be no end in sight to the Fed’s low to no interest rate policy. A less than stellar Commerce Department report on the second quarter gross domestic product Friday (August 27) morning is the latest contributor to the sense of pessimism hanging over the US economy.

The revised GDP report showed growth of just 1.6 per cent for the US in the second quarter. A higher volume of imports and slow inventory build up were targeted as reasons for the drop off in growth following a 3.7 per cent GDP increase in the first quarter.

Friday morning’s revised report is down from last month’s estimate of a 2.4 per cent second quarter increase. However, it is slightly better than the 1.4 per cent revised number forecasted by analysts.

Bankrate.com shows a national average mortgage rate on a 30-year fixed mortgage loan at 4.5 per cent. This is down just slightly from last Friday when the average was at 4.51 per cent. The rate on a 15-year fixed conventional mortgage is at 3.93 per cent.

With the economy growing slowly and unemployment still high at around 9.5 per cent, it is hard to imagine any plan but low interest rates from the Fed. Many analysts have actually been pondering what other options Central Bank leaders might come up with to help spark a sluggish economy.

American homeowners have been taking advantage of low interest rates. However, this has been more evident in the refinance market. Record levels of refinances have been reported in the last few months as Americans try to take advantage of the opportunity to extend their loans or position themselves for interest savings in the long run.

Unfortunately, the housing market has been weak since the expiration of popular home buyer tax credits at the end of April. Many housing analysts believed that it was the aggressive tax credits combined with low mortgage rates that led to strong home buying in the first quarter of 2010.

Pre-existing home sales were down sharply in July compared to the same month a year ago, and the Commerce Department reported Thursday that new home sales were down about twelve per cent nationally in July.

There has not been much public commentary in favor of higher interest rates of late, as negative jobs and housing data has been the norm for several weeks. Federal Reserve Chairman Ben Bernanke speaks in Wyoming Friday. He may offer some glimpse of the Fed’s outlook for the near-term in the economy.


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