Mortgage interest Rates 2016 Chart2016 Mortgage rates Chart
A chart that shows why today's low interest rates could be sustainable.
Last Wednesday, the interest rates paid by the US administration to lend 10 years of cash dropped below 1.4 per cent. These quartz graphics tell the story: Sinking interest rates over the past ten years have taken many by surprise. A year ago, when I was buying a home, my friends said I should rush and make a sale before the interest went up again.
Mortgage rates and sovereign interest rates are different, but they move up and down together. Instead, mortgage interest rates have continued to fall. Since almost a decade, economists have been forecasting that interest rates will soon increase - even if they continue to fall and fall. A lot of folks still believe that it is only a question of timing before interest rates return to "normal" rates of 6 to 8 per cent (for mortgages) and 4 to 6 per cent (for sovereign bonds).
However, looking at interest rates over a longer horizon points to another possibility: Today's interest rates are reasonable. Assuming you show someone a chart of the government's 10-year credit cost from 1800 to 1960 and ask him to forecast interest rates in the 2010s. You would probably watch the fairly consistent downtrend and forecast that rates will be very low in the 2010s - maybe around 1.5 per cent where they are today.
Why humans have such a powerful instinct that 6 per cent of interest rates are ordinary and 1.5 per cent of interest rates are anomalous is that the lifespan of humans is only about 80 years. Very few today recall the extremely low interest rates of the nineteen-forties, and no one recalls the steady decline in interest rates of the 1800s.
However, many folks recall that interest rates were much higher than in the seventies, eighties or nineties, and they expect these high interest rates to return. However, there is good cause to believe that the 1960-2010 horizon was an abnormality caused by the high rates of price increases over the years.
Borrower feared in the seventies that rate increases in Europe would undermine the value of their assets, so they called for higher interest rates to offset them. However, when rates of inflation began to decline in the eighties, interest rates also dropped. Looking at the overall situation, sinking interest rates make good business sense. What's more, the interest rate is also rising.
As with any given rate, interest rates are determined by bid and ask.