Even interest rates need a vacation

Mortgage interest rates had been working hard since late 2016. They climbed from a historic low of under 3.5 percent for a 30-year fixed mortgage, to their current spot at 4.69 percent, according to Mortgage News Daily. But it appears that this summer, even they needed a break.

Before the economy broke in 2007, rates were jumping around 6.5 percent. Then, as the water rushed into our economic party ship, the Federal Reserve, along with every other central bank around the world, used every tool at their disposal to bail the water out, including pushing rates to their lowest levels ever. Rates bottomed out in the fall of 2012 at around 3.33 percent.

Since then, they have struggled mightily to rise back up to healthy levels. Just when economists started thinking the economy was on track, something would crop up to knock that theory down. Culprits included slower growth in China, economic instability in Europe, a terrorist group running rampant throughout the Middle East and North Korea threatening nuclear war, to name a few.

But since the end of last year when most economists started claiming that our global economy had hit “full stride,” rates climbed relatively unimpeded to where they are now. Sure, there are looming trade wars with every country on the planet, and Italy for a minute seemed on the brink of another political collapse. But compared to what we’ve been through since 2008, these seem to be mere fly specs on the radar.

Inflation finally hit 2 percent this year. It was a mark the Federal Reserve had been waiting for, basically deeming that the time had come when policy-strategy would shift from trying to grow the economy to trying to slow the economy. Inflation, the measure of the growth of costs of goods and services, as well as salaries, had been stuck below the 2 percent mark. A historic low unemployment rate has seemed to force employers to pay more for employees that now seem to have more jobs to pick from than they know what to do with. There are more jobs available today than there are unemployed people to fill them.

So it seems like rates got comfortable with the fact that our economy is on solid footing. They got close to 5 percent and seemed to have taken a break for the last few months. The question is how long will they stay on break? In many ways, our economy has grown so slowly over the last 10 years that it’s hard to imagine there is a steep cliff waiting around the corner. In other words, it seems like a stall in growth would be more in order than a bubble-burst of some sort.

As the pain and instilled fear from the 2008 collapse fades into the history books, economists are certainly seeing signs of frivolity. Consumer credit card debt hit an all-time high this year. Despite there being a glut of houses in the above $500,000-range, banks are making loans to build more of them. And because of the conversely low inventory of houses in the under $500,000-range, home values and rent-rates are rising at a rate that’s making owning a home impossible for our lower-income workforce.

Over the last 10 years, as our economy struggled to grow, economists were searching for positive news to help fill the sails. Now that we seem to have hit “full stride,” many are looking for the rocks below the water. Let’s hope we all listen to them and don’t forget they are there.

MORTGAGE BANKER – NMLS#1043587

Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases. *The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group.

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