- - Thursday, July 14, 2011

Over the past couple of years, the federal government has engaged in massive spending programs designed to kick-start our sluggish economy. The typical byproduct of such policies is inflation, bringing higher interest rates. Yet mortgage rates have surprised almost every economist in 2011 by remaining low. How can this be?

First, we can thank the global economy for keeping down U.S. interest rates. Though the American economy is in bad shape, many economies around the world are faring worse. Greece, for example, is on the verge of bankruptcy.

During uncertain economic times, investors worldwide purchase U.S. Treasury bonds because the U.S., despite our shaky national economy, is still considered to be a safe haven to park money.

Last week, however, the U.S. Commerce Department reported that just 18,000 jobs were created in June, well below the 125,000 most economists had expected. Interest rates fell on the news, in the fear that the national economy may not be recovering.

“It is about as bad as anyone could imagine. On face value, it does suggest we are grinding to a halt,” said Nigel Gault, chief U.S. economist for IHS Global Insight.

The unemployment rate rose to 9.2 percent from 9.1 percent, suggesting that we are not heading away from the fleeting double-digit inflation that was reported a few months ago. The so-called “double dip” recession may be a reality. Or is it possible that the economic recovery never existed? Time will tell.

We can digest what the media reports say until the cows come home, but it appears to me that the regular American is struggling.

I just came back from a college reunion at the beach. Two of my longtime friends live in Florida and report that their homes are worth half of what they paid. One fellow said his home is worth $100,000 less than the balance of his mortgage. Another fellow was laid off in April, with no job opportunities in sight.

Compared to the rest of the U.S., the District is an anomaly. Property values have fared much better, and the job situation is far healthier. I noticed this firsthand when I moved to Charleston, S.C., five years ago. The D.C. metro area is more insulated from an economic downturn, which makes sense. The federal government is not only a giant employer but also a huge customer. Charleston has far more small businesses and entrepreneurs.

It will be interesting to see how the economy fares in the second half of 2011. Meanwhile, mortgage rates remain low. With any luck, this will encourage more turnover in the housing market and fuel refinancings, creating more money in homeowners’ pockets to be spent somewhere else.

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

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