Home » U.S. Economy » High Gold Prices; Low Mortgage Rates; Mid-Level Growth

High Gold Prices; Low Mortgage Rates; Mid-Level Growth


Latest reports show that U.S. mortgage rates have reached record lows.  At the present, a homeowner can obtain a 30-year fixed interest rate at 4.11%; the lowest in 40 years according to Freddie Mac.  The previous year’s national 30-year average was recorded at 4.15%.

November 2010 saw demand that drove down the 10-year T-note’s yield (a benchmark for consumer loans including mortgages, as noted by Bloomberg) to 4.17%, according to an article by the LA Times.  This year, one could expect to receive a 10-year T-note coupon rate at 2.13%.  As of September 9th, a 10-year T-note coupon rate closed even lower at 1.91%.

The article went on to state, “[The] drop in loan rates came on the heels of the Federal Reserve’s announcement … that it expected to keep short-term interest rates low for at least two more years because of the economy’s faltering recovery.  Despite the low rates, the housing market remains sluggish.  About 70% of all home-loan applications in the first half of this year were for refinancings, not home purchases, Freddie Mac economist Frank Nothaft said.”

While mortgage rates plummet, other hard assets such as gold continue to surpass speculation.  The price of gold in the U.S. has reached all-time highs.

Gold continues to climb at a staggering rate of 119% (or 11.9% annually) since the 2007 financial-industry flop.  As stated by Reuters, “Gold hit a third consecutive all-time high near $1,900 after staging its biggest weekly gain in 2-1/2 years last week.”  Concurringly, analysts expect that number to increase as much as $2,500 an ounce before any real signs of a market correction is made.

Gold is typically used as a hedge against inflation, particularly, during uncertain economic times.  As a result, sales in gold commodities began to surge when the value of the U.S. dollar declined.  Presently one dollar is worth 0.7292 (courtesy of Yahoo! Finance).

To help explain the role of gold as a commodity against the value of currency in terms of economic security is Van Eck Associates, a commodities brokerage firm: In the long-term, the purchasing power of gold is the only commodity in the world to increase in value while other’s lapse.  “Unlike any of the world’s currencies, each of which represents debt incurred by the relevant issuing government, gold is not a liability.  And since it is not a liability, it can neither be repudiated, nor its value undermined by inflation.  This stands in stark contrast to the world’s paper currencies that, printed as they are, by ‘fiat,’ always lose value in the long term (this can, and does, also happen in the short term.)”

On the other side of the market spectrum (in terms of inflation) is the real estate market.  According to the National Association of Realtors, inflation is important because it can lead to shifts in mortgage rate policy.  “Consider that if you already agreed to a certain amount of a loan, and you see the value of money decrease, you technically owe less money than before. While the total amount of dollars may be the same, the total worth of the loan is less.”

The NRA provides monthly published reports that follows changes in both consumer and producer price indexes.  For August 2011, the report states that, “Price change from July to August generally picked up, and year over year inflation continues to run high due to previous increases.”

Inflation is currently at a rate of 3.8%, which means in terms of currency, the value of a dollar today has less purchasing power than it did yesterday.  The Federal Reserve (those who control the flow of currency for our nation), however,have determined that for inflation the best parameter for economic stability for the United States is anywhere between 2-3%.

Data Sources: Mortgage Rates, Freddie Mac; Inflation Rates, Inflationcalculator.com; Gold Prices, Kitco.com

The chart above shows the yearly moving-averages for both mortgage and inflation rates as well as the yearly average price for gold (based on London PM Fix-US Dollars) per ounce from January 2000- September 2011.  In 2002 when inflation dropped to 1.6%, in typical fashion, gold commodities began its ascension along with the decrease in the mortgage rate.

As motivation for demand in gold moved away from anti-inflationary tactics to financial recovery in 2007, the moving-average for the rate of mortgage shifted in 2008 from its usual pattern of following the inflation rate, while 2009 witnessed deflation at -0.4%.

As stated previously, with record-low mortgage rates one would expect the number of homes purchased would increase, but, unfortunately this is not the case.  The number of mortgage applications has in fact declined.  The number of applications dropped 4.9 percent in the week ended Sept. 2, according to Mortgage Bankers Association.  The MBA has also announced that the refinancing index fell 6.3 percent while the purchase gauge rose slightly at 0.2 percent.

In a report by Bloomberg it was stated that, “The housing market remains challenging primarily due to uncertainty caused by general domestic economic and political concerns, stock market volatility and turbulent international economic conditions,” Ara K. Hovnanian, chairman and chief executive officer of homebuilder Hovnanian Enterprises Inc., said … .“We see very few indicators that any recovery in the housing market has begun.””

The forecasts for gold and real estate could not be at a more polar opposite.  “Gold prices finished August trading above $1,800 an ounce, a magnificent 12.3% for the month, recording its best one-month performance since 2009” (SeekinGold.com).  Gold prices continue its uptrend with end of week closing price for September 16th at $1812.10.  And while the gold ‘rush’ is not considered a bubble, it is definitely to be viewed as a helium-filled balloon with amazing staying power.

Meanwhile, what once was a glimmer of hope for the housing market has fizzled into thin air.  The NRA reported that early 2011 showed promising signs of 5.36 million units of existing-home sales in January have since declined mid-year to 4.67 million in July.  Additionally, the 2011 national median of existing-home sale prices were $174,000 in July, down 4.4% from July 2010; with the pre-adjusted annual figure for end of 2011 expected to decrease by 3%.

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  1. […] ‘Immediate Priority’Up To The Minute Prices on Gold, Silver, Platinum or Palladium!High Gold Prices; Low Mortgage Rates; Mid-Level Growthdiv.socialicons{float:left;display:block;margin-right: 10px;}div.socialicons p{margin-bottom: 0px […]

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