Michael Cordova of Milestone Mortgage ( firstname.lastname@example.org ) sent me a newsletter that gives a very timely warning of the potential for future interest rate spikes. He writes:
“Former Federal Reserve Chairman Alan Greenspan wrote an op-ed piece in the Wall Street Journal titled “US Debt and the Greece Analogy,” where he warns that the present path of government debt accumulation is unsustainable. Don’t be fooled by today’s low interest rates. The government could very quickly discover the limits of its borrowing capacity, said Greenspan. He also added that the present low inflation and low long-term interest rate environment has fostered a “sense of complacency (within the government) that can have dire consequences.” What Mr. Greenspan is saying is that government, rather than cut budget deficits and show fiscal restraint – is taking advantage of this low interest rate and low inflation environment to accumulate more debt – and the consequences can be very bad…just look at Greece.
Mr. Greenspan also said that Treasury yields could spike, and in a hurry. I grant that low long-term interest rates could continue for months, or even well into next year. But just as easily, long-term rate increases can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose almost four percentage points.
Mr. Greenspans sobering comments should not be taken lightly. There is no fundamental reasons why interest rates and more importantly to us, mortgage rates should be this low. The confluence of factors all coming together at the same time have made for an incredible low interest rate opportunity, but it wont last long, and can change very quickly. Borrowers have temporarily been given this gift of historically low rates. Its our job to help them see and capitalize on this opportunity, before it is gone. ”
Anyone on the fence as to whether now is a good time to buy a home should take this warning to heart.
For more information about Palos Verdes and South Bay Real Estate and buying and selling a home on the Palos Verdes Peninsula, visit my website at http://www.maureenmegowan.com . I try to make this the best real estate web blog in the South Bay Los Angeles and the Palos Verdes Peninsula. I would love to hear your comments or suggestions.