Mortgage Rates Reach An All-Time Low: A Financial Tragedy

In the late 1990s and early 2000s, when an entire cottage industry of self-appointed financial gurus seemed to come out of the national woodwork, it appared as if the experts knew only one way to describe the mortgage rates.

“All-time low” said the impeccable-looking, pearl necklace and pencil skirt realtor-type that happened to be hosting the local news’ consumer report segment. “All-time low” said the friendly local loan officer, offering a candid smile from behind his wood-paneled steel desk and bowl of M&Ms.

“ALL-TIME LOW!” screamed the flyers from the mortgage broker that seemed to litter the floor of every mall food court in America. “All-time low,” said the advice columnists in the papers and the magazines and the blogs. “All-time low” jiggled the letters on the seizure-provoking, insufferable pop-up ads with the dancing monkeys.

“All-time low” became the national mantra, present in every cocktail conversation and every other interstate billboard, and for good reason: the rates were falling. 7.1, 7, 6.9, 6.8. Every week people watched the news or read the paper in anticipation of what had become the great national countdown, at the end of which, like all great national countdowns, there’d presumably be some kind of epic party with screaming and confetti and champagne and making out. Or at least monkeys being shot into space.

Today, Freddie Mac released the same survey it’s released every Thursday from time immemorial noting the average rate on a 30-year fixed home mortgage had fallen to a (you guessed it) all-time low of 3.94 percent.

So what happened to the brokers and the Vaseline-shine teeth news anchors telling everyone about it? Why isn’t everyone running to the bank, wrestling the nearest loan officer into submission to get them to sign off on the refinance? Where are the monkeys?

In a cruel, sad statement of our current economic troubles, the vast majority of American borrowers can’t take advantage of the new low rates. Like a tweaking meth-head with a shiny new Allen wrench, banks have tightened, tightened, tightened their credit standards, simultaneously choking off the consumer economy and thumbing their noses at the government, who showered them with trillions in the hopes of increasing liquidity.

Consumers have been turned down for loans so many times, they’re not even asking for them any more. Data from the Mortgage Brokers association released yesterday shows a drop of 4.3 percent in new applications compared to a week ago. Refinance applications were down by 5.2 percent. More generally, the G.19 report released by the Fed in mid-September shows consumers are borrowing less across all categories, the one exception being students taking out federal student loans.

The moment, where an interference in market dynamics leads to a disparity in the supply-and-demand equilibrium, is unprecedented.

Well, not so unprecedented. There was that time in 2008 when, in spite of new discoveries of crude supply outpacing the increase in demand, a barrel of oil peaked at nearly $130, courtesy the Goldman Sachs-engineered manipulation of the commodities market. There was also that time in the late 1990s, when, in spite of record charitable giving to Sudan, warlords caused tens of thousands to die of hunger in that country.

There are examples farther back. Remember reports from the early days after the fall of communism, when cameras caught East Germans walking wide-eyed through West Berlin supermarkets, only to be unable to buy anything because no one knew what their currency was now worth? Remember stories from the Great Depression, about farmers unable to find buyers leaving crops to rot on the fields while people nearly starved in the city?

So, you see, it’s happened before.

In all fairness, it might seem like these “water, water, everywhere and not a drop to drink” examples are a bit dramatic. But before I turn to pondering, as some have recently done, whether our current situation is more like the Great Depression of the 1930s or the Long Depression of the 1870s, I'll note that drama befits the state of things today. Remember where you heard it first: we’re at an all-time low.