Mortgage rates have slumped this summer in a way that should elate borrowers. Alternatively, a lot of lenders and Fed officials no doubt wonder how it’s possible that mortgage rates went from 4.09 percent a year ago to a meager 3.42 percent in the past week according to Freddie Mac.
It’s not just that mortgage rates are low, it’s that they can get lower – and perhaps very much lower.
Just look at the news: Great Britain voted to leave the European Union, there has been a coup attempt in Turkey, bombs are going off in Saudi Arabia, and economies in Europe and Asia are slowing if not stalled. If you’re an investor where do you want to put your money? The answer is here.
According to the Bureau of Economic Analysis, “expenditures by foreign direct investors to acquire, establish, or expand U.S. businesses totaled $420.7 billion in 2015, an increase of 68 percent from 2014, when expenditures were $250.6 billion.”
The very trends which make the world better also tear at its basic fabric. We’re all in favor of technology when it means curing an illness or making cars that drive themselves, but the penalty is that technology too often means robots at the factory that cost jobs. We want foreign investment in the US but we don’t want foreign control of our economy, core industries or critical companies. We want foreigners to buy our goods and services but we have a desperate need to reduce our balance-of-payment imbalances.
The National Association of Realtors says “on average, foreign buyers paid $477,462 which is higher than the average price of all existing homes sold in the U.S. at $266,683.” In 2015, according to NAR, the typical Chinese buyer paid $936,615 for a home versus $598,182 for a British purchaser and $332,072 for a Canadian buyer.
Money will keep coming to the US in the form of investments, home purchases and mortgage capital until there are better options. Right now there are no alternatives to the safety and security of the American marketplace, which itself is a multi-trillion dollar asset, especially when you consider the available choices and then wonder, what choices?
Mohamed El-Erian, Allianz’s chief economic adviser, told CNBC earlier this month that “while we control our economic destiny, we no longer control our yield curve. Our yield curve has been captured by Europe, has been captured by economic developments there and has been captured by policy prospects there.”
But not just Europe alone. Markets in Asia surely don’t look strong and the Middle East has seen both an oil price collapse and an ongoing general anarchy that makes investment largely impossible.
El-Erian sees lower Treasury rates in the coming year and that will also mean lower mortgage rates. So far, he’s right on target.
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AuthorBio: Peter G. Miller
Syndicated in more than 125 newspapers nationwide and published in various outlets, media and non-media, online and off, Peter G. Miller is the author of seven books originally published by Harper & Row, including one with a co-author. More than 300,000 Miller books are in print. Mr. Miller has appeared in hundreds of media outlets including Oprah!, the Today Show, This Morning, CNN, MSNBC, and NPR. He was the creator and original host of the AOL Real Estate Center and has also produced a number of major advertorial features for The Washington Post.
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