Mortgage rates in the U.S. are incredibly low… and there’s a great chance they’ll go lower…
Last week, U.S. 30-year mortgage rates finished the week around 3.6%.
[ad#Google Adsense 336×280-IA]They haven’t been this low – basically ever. (The exception is late 2012, when they nearly touched 3.3%.)
As an American, it sounds outrageous to even consider that they could go lower. But when you take the rest of the world into account, it’s not as outrageous as it seems.
I will show you why today. But first, let’s back up for a minute…
Where do mortgage rates come from? Who decides what they will be?
Typically, the U.S. 30-year mortgage rate is (somewhat) based off of the U.S. 30-year Treasury bond interest rate…
Take the 30-year government rate (which is thought of as the “risk-free” rate)… add a bit of interest due to the risk of the borrower… and boom, there you have it. (It’s a rough approximation of reality, at least.)
You can see this idea in the chart below… The lower line is the 30-year Treasury rate. The upper line is the 30-year mortgage rate…
It has to do with what’s going on in the rest of the world…
Interest rates are crashing globally. And 30-year government bond rates outside the U.S. are “crazy low.” Take a look:
Look closely at this list… One of these four is not like the others. Which one is it?
It doesn’t take long to realize that U.S. interest rates are dramatically higher than the rest of the developed world.
Keep this in mind: Money flows where it’s treated best.
The difference between U.S. rates and the rest of the world is simply too great for investors to ignore… Money is about to flow into the U.S.
Investors who have their money in low-paying bonds in Germany, Japan, and Switzerland will move some of that money into higher-paying U.S. bonds.
That will put downward pressure on long-term U.S. interest rates.
And the chart above shows, if U.S. interest rates on 30-year government bonds go down, U.S. mortgage rates will likely follow them lower.
Mortgage rates are incredibly low in the U.S. based on history. And as I showed today, there’s a strong chance they could go even lower…
Good investing,
Steve
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Source: Daily Wealth