- - Thursday, December 29, 2011

It’s been quite a year. Let’s take a look back and examine what 2011 has offered.

The yield on the 10-year Treasury bond plummeted from 3.50 percent in January to 1.94 percent as of this writing. Mortgage rates followed. A year ago, I was quoting a 30-year fixed rate at about 5.25 percent with little or no fees. Today, in some cases, I can quote a no-fee loan as low as 3.875 percent.

The Dow Jones industrial average bounced around like a pingpong ball. It began 2011 at about 11,600, rose as high as 12,800 in April, sank as low as 10,800 in September, and is currently at about 12,100, about a 4.50 percent net increase.

The U.S. unemployment rate remained high, beginning the year at 9 percent and falling to 8.6 percent in November.

The consumer confidence index declined in 2011, suggesting that an improvement in the economy may take some time.

Inflation rose but remains in check. In January, the inflation rate was an almost nonexistent at 1.6 percent. It rose to 3.9 percent in October and fell back to 3.4 percent last month. Economists generally consider these numbers to be tame.

2011 was even more interesting abroad. Europe has had its share of problems, primarily in Greece, Ireland and Italy.

These events and statistics cumulatively explain why mortgage rates have tumbled. Low inflation, slow growth and trouble overseas are factors that create demand for the relatively safe haven of U.S. Treasury bonds.

The Fed has made clear its intent to maintain policies that will encourage low interest rates. I would imagine we can expect rates to remain low in 2012. This is good news for homeowners who can save money by refinancing.

It’s also good news for the stagnant housing market because low rates should encourage buying. The problem is, the credit markets still are reluctant to lend money reasonably.

After the implosion of the subprime mortgage market and subsequent mortgage meltdown, lenders tightened their lending standards to the point of an overreaction. If lenders would adopt underwriting standards that include some common sense, a lot more folks would be able to take advantage of these low rates, and any improvement in the economy would accelerate.

Fannie Mae and Freddie Mac, are you listening?

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.

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