Mortgages Offer Rare Positive Economic News
ROBERT SIEGEL, host:
Here's something we don't get to report all that often lately, good financial news. Mortgage rates fell down to a record low this week. The average for a 30-year fixed rate mortgage is 4.85 percent. It's never been lower, at least not since 1971 when the official survey began. The Obama administration has been eager to get mortgage rates low so that more people can buy houses and housing prices might stop falling. Rising housing prices are crucial to any economic recovery. And joining us to sort out all this news is NPR economics correspondent Adam Davidson. Hi Adam.
ADAM DAVIDSON: Hi Robert.
SIEGEL: Suddenly it's very cheap to buy a mortgage, is that a great sign, cause for a celebration over at the White House?
DAVIDSON: I'd say it's certainly some of the best news they've gotten in a long time. And it comes after a few weeks of good news in the housing market, you know, the front lines of this whole crisis. We've been seeing housing purchases moving up over the last three weeks, after months and months and months, where they just moved down, down, down.
And seeing mortgage rates so low implies that more and more people are going to take advantage of the discount. But we are not yet at the place where this is a regularly, naturally functioning market. This is really a ridged game. The government is forcing these mortgage rates low.
SIEGEL: When you say it's a ridged game, what is the government doing to force mortgage rates low?
DAVIDSON: Well, I talked to an investment banker today, a former investment banker who said that if he as an investment banker did what the government is doing right now, he would go to jail.
(Soundbite of laughter)
DAVIDSON: I don't want to make it sounds so conspiratorial. But basically, in a very open way, they're very clear about it, the Federal Reserve is buying huge amounts of long-term U.S. government debt. And their explicit goal is to get interest rates lower than they would be otherwise, so that mortgage rates can be lower, so that more people can buy houses.
The reason the investment banker thought he might go to jail is because it's like a company buying its own stock at a crucial moment just to artificially increase the price so that they can make more profit.
SIEGEL: It means the Fed is running a pump and dump scandal here?
DAVIDSON: I don't - I'm not saying that at all.
(Soundbite of laughter)
DAVIDSON: They're fairly open about the whole thing. But they are clearly saying that wherever the natural market would be is not where they want it to be, and they are going to intervene aggressively. But that tells us this is not a self-sustaining phenomenon. This requires trillions of dollars of government support.
SIEGEL: Now, for many years mortgage rates have been lower because China and other foreign governments have bought huge amounts of U.S. debt. Are they still doing that, and should we worry that perhaps they might stop?
DAVIDSON: Yeah, this is certainly on everyone's mind these days. They've been buying U.S. government debt forever, and U.S. government debt has gotten less and less attractive to them because it's been paying lower and lower interest rates. But we are not there yet. We are not at the falling over a cliff place. China is still buying a very healthy amount of U.S. government debt and so are many other foreign governments.
But we are hearing signs. We are beginning to see the early stages of them saying, hey, maybe we're going to diversify. Maybe we're going to move to other assets. And what we hope very much, we should, I mean, I think everyone in the world would benefit if that happens in a slow and measured way and not in an abrupt way. I don't think it's in China's interest to just send the U.S. economy on some horrible downward slide. So hopefully that will happen in a measured pace.
SIEGEL: Is anybody authoritative offering some measure of how far along the road toward recovery we can now say the economy is?
DAVIDSON: I'd said it's notable that they're not screaming out how wonderful this news is today. I think this may turn out to be the first tentative steps towards a healing of this economic crisis. But that's the very best case scenario that it's the first tentative steps. I think that there's an awful lot that has to happen before our banks are fundamentally healthy, our credit markets are fundamentally healthy and people in businesses are able to get the money they want to borrow so that they can start the economy being, you know, in its own self-sustaining way, productive again. If this is a turning point, it's a very small and tentative turning point.
SIEGEL: That's Adam Davidson, part of the Planet Money team. Their podcast and blog can be found at our Web site npr.org/money. Thank you, Adam.
DAVIDSON: Thank you, Robert.
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