Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights interest rates and the situation in Greece.
- If the interest rates were to rise by few percentage points, then the deficit problem could quickly spiral out of control. Mortgage rates would also rise, as the 30-year fixed mortgage rates are priced on average at about 2 percentage points above the 10-year Treasury rates. NAR expects the 10-year borrowing rate to reach 3.7 percent by the end of the year.
- One reason for the low financing cost has been due to active purchases by the Federal Reserve, as part of its Quantitative Easing monetary policy. However, when the Federal Reserve stops buying U.S. bonds as scheduled in few months, then higher interest rates may be required to attract bond buyers.
- The U.S., both politically and financially, in no way resembles the situation in Greece. All the same, it is worth contemplating the worst-case scenario. Greece has to offer 16 percent interest rates on its government bonds to attract buyers, due to its runaway deficit and debt — which is about twice as bad as that of the U.S. Such a high borrowing rate implies a certain default by Greece at some point. Many Greeks are protesting against government spending cutbacks and the raising of retirement age. Greece is garnering very little sympathy from average Europeans, however, since Greeks on average are still retiring at a much younger age with full pensions than most other Europeans.