Low Interest Rates because 2012 is an Election Year?

Interest rates have been on a downward streak lately, but recently they really have hit record breaking lows.  According to an article by RISMedia, the 30-year fixed rate just averaged 3.75% for the fifth consecutive week. Additionally, the 15 year fixed mortgage rate hit an astounding 2.97%

 
Freddie Mac's chief economists speculates that market concerns over tension in the Eurozone lead to decreased treasury bond rates and thus lead to these decreased mortgage rates.  

Another possible cause for interest rates being so low is that 2012 is an election year.  There is speculation that interest rates are kept low during election years to encourage voting for the incumbent president. After the election takes place and all the hype has settled down, there is the possibility that rates could start increasing again.

An election year does not necessarily correlate with interest rates.  Many other external factors like GDP statistics, employment rates, inflation rates, and foreign markets have an impact on interest rates. 

 However, with certain interest rates now hitting under 3%, there is only so much lower these rates can go!

If and when interest rates climb upwards again, the amount a buyer could spend on a home will decrease. Check out the two scenarios for interest rates at 4% vs. 5% in the attached photo.

A $400,000 home mortgage at 4% mortgage rate could have a possible monthly payment of $1,910.  If the rates jump up to 5%, that same monthly payment would only get you a mortgage for $352,000. Similarly, a mortgage for $200,000 at 4% interest rate could have a possible monthly payment of $955.  If the rate jumps to 5%, that same monthly payment would only be for a mortgage amount of $178,000.  A one percent increase in interest rates leads to an eleven percent drop in value for the home mortgage. 

Will interest rates start to rise after the election? We cannot say for certain.  The only thing we DO know for certain is that these rates are extremely low, making it a great time to buy. As demonstrated above, with such low rates buyers can afford much more house for the money.  If you are considering buying a home, now is the time to start the process before the rates go up!

If you are interested learning more about current interest rates or home buying in general, call us today at 215-855-5600 or email us a info@cbrealtycorp.com.