Once again, I am publishing a headline that has not yet happened, but very well may be seen in the not-so-distant future. While we are currently experiencing some of the lowest mortgage rates in history, and may even see lower if the government gets their way, do not expect them to remain low for very long. In fact, low rates may be a thing of the past in 2009.
You may have already heard me talk about the “mortgage rate bubble”, a term I coined a while ago. Much of the reason for the bubble will be the fact the Fed will ultimately be the only buyer of mortgage backed securities in their efforts to drive mortgage rates down to 4.5% or less in another feeble attempt to stimulate the housing and mortgage markets. With rates this low, we have seen huge increases in demand for mortgages, but with tighter lending standards, even getting tighter right now, most of these applications will not close and we are not seeing a rush to buy up properties by anyone other than investors. Investors seem to amass the majority of buyers, but tighter lending standards have reduced their abilities drastically.
With all of the governments stimulus packages and bailout programs, which have totaled over $3 trillion so far, inflation will return, and return in full force. I know that sounds strange since we are experiencing disinflation, and even deflation in some areas. But make no mistake, the government has shown they will continue to create money out of thin air and through it into the economy until they get what they want, an opening of the credit gates and the resulting inflation.
The problem is that when the credit gates open, and open they will in due time, inflation will skyrocket as now we will realize the full effects of the government’s overspending and overprinting of money, along with the new money created by the extension of credit. In the last few years, we have seen credit as a major driving force in the economy, and that is why the Fed wants it so badly, as it is necessary to prevent deflation.
So, what can we expect to occur in the near future?
We can expect the economy to remain in poor condition with inflation, possibly even hyper-inflation, to return. As a result, due to the fact that inflation is the archenemy of mortgage backed securities, mortgage rates will climb, likely exceeding 10% in the future. With mortgage rates being essentially driven lower artificially by the Fed, that climb in mortgage rates may happen very quickly, hence the bubble will burst.
No related posts.
Related posts brought to you by Yet Another Related Posts Plugin.