My World
Hello. I will share my own views and opinions and inform you about many issues around the world.

The place Will Loan Charges Pass After the USA Downgrade?

Well the unthinkable has happened! The United States credit rating has been downgraded for the first time ever in its 70 year history of being rated. The stock market was punished severely because of it. The Dow has seen two days of -500 or more points in the last week with no bottom in site. What we thought was a correction now appears to be a broad market sell-off.

But how will all of this affect mortgage rates? For the moment it's actually been great for rates. We are right near our all time lows again. Generally speaking, mortgage rates will follow the bond market. When people jump out of stocks they usually move into bonds to park their money. When more people buy bonds, it drives the yields of the bonds down, and hence we have lower interest rates. That's how it usually works.

The problem though is that this is no ordinary sell-off. The reason the stock market tanked is because of lost confidence in the United States ability to never default. The United States defaulting on debt would have been unthinkable years ago but we JUST about saw it happen last week. So investors are spooked, but ironically they are still buying US treasuries anyway. Why? Probably because there is nowhere else to go. The euro is in just as bad if not worse shape than the dollar and the dollar is still the worlds reserve currency. Besides, investors saw how the government came to the rescue moments before the default and that probably restored confidence in people that they won't ever actually default (albeit this was a really close call).

How long can these conditions last though? Probably not too much longer. Eventually rates will have to go up. Right now rates are so low that investors aren't really making anything much less making enough to keep up with inflation. People are buying US debt literally because there is nothing else to buy that they feel is safe. But remember, rates are artificially low right now and they can't stay this way forever. Eventually the market will demand higher rates for our debt and when it does, WATCH OUT! Higher rates will mean that the US will have to print even more money to service its debt, which will mean more and more debt ceiling issues, and more lost confidence in the dollar and treasuries.

Until that happens though, you may as well save yourself some money by refinancing or buying a home now at the lowest mortgage rates have ever been!

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