'Summer Of Love' Was More Fun, But 'Summer Of Loans' Is Good Too : The Two-Way Lending rates have been bumping along at historic lows this summer. That has helped a lot of people, such as home and car buyers. But it has hurt some too, including retirees and bankers.
NPR logo 'Summer Of Love' Was More Fun, But 'Summer Of Loans' Is Good Too

'Summer Of Love' Was More Fun, But 'Summer Of Loans' Is Good Too

A home is offered for sale in Chicago. Mortgage interest rates have been falling, helping potential homebuyers. Scott Olson/Getty Images hide caption

toggle caption
Scott Olson/Getty Images

A home is offered for sale in Chicago. Mortgage interest rates have been falling, helping potential homebuyers.

Scott Olson/Getty Images

The name isn't as catchy as 1967's "Summer of Love."

But 2016's "Summer of Loans" is having quite an impact too.

All sorts of lending rates have been pushed to ridiculously low levels this summer, making borrowing much easier. Even though some rates nudged up a bit on Friday, they remain at extremely low levels compared with historic norms, and even compared with recent summers.

And as with any economic change, this rate move is creating winners and losers.

Here are some groups who are benefiting from historically low rates, and some who are hurting.

WINNERS

Taxpayers – When the U.S. Treasury can issue debt at historically low rates, the government can save money. On Friday, the White House said the federal government will spend about $600 billion more than it takes in this fiscal year. So Treasury will have to borrow that money from the private sector to cover that deficit. It's good for taxpayers when the government can pay out less in interest on its bonds.

Homebuyers The average interest rate on a 30-year fixed rate mortgage has been falling all year. This week it was 3.42 percent. Last year at this time, it was more than 4 percent. And one decade ago, it was 6.76 percent, according to Freddie Mac.

Stock owners – Stock prices have been setting records as investors have gone in search of higher returns. With bonds yielding so little, many investors have decided they'd rather own stocks that pay them dividends. That move into the stock market has sent market measures soaring to records. For example, the Dow Jones industrial average closed at 18,516.55 Friday — a record.

Auto buyers – Rates on 60-month loans for new cars are at low levels. Such a loan now averages just 2.87 percent, according to Bankrate, which tracks them. As recently as May, such loans carried an interest rate of 4.3 percent. And remember, during the inflationary years in the early 1980s, car loans exceeded 17 percent.

LOSERS

Retirees – Many people who live on fixed incomes steer away from risky investments like stocks. They prefer to put their savings into safe investments, such as bank certificates of deposit or Treasury bonds. The goal is to collect enough in interest to stay just ahead of inflation. But these days, a one-year CD is paying out about 1.25 in interest, while the latest figures show core inflation rose 2.3 percent over the past year.

Bankers – Banks make money on the spread between the interest rates they charge on loans and what they pay out on deposits. With interest rates so low, that spread is under pressure. Banks have to try to cope by cutting costs and earning more from fees on new mortgages and other loans.

Commodity producers – Low interest rates make it easier for companies to expand. So that's just what a lot of commodity producers did in recent years: expand and expand some more. They planted more crops, drilled for more oil, mined for more iron ore and so on. Surging supplies have driven down commodity prices, leading to layoffs. For example, oil was selling for about $105 a barrel the summer of 2014 — and now it's about $46, thanks to the oversupply. That change has driven job losses in the oil field.

Federal Reserve policymakers – The Federal Reserve has been hoping to get interest rates back up to more normal levels. So back in December, Fed policymakers pushed up the federal funds rate by 0.25 percent, hoping that nudge would help set an upward direction for all sorts of interest rates. But that effort turned out to be a flop as other central banks have stuck with low — or even negative — interest rates.