It seems many are concerned about rising interest rates this year and whether these higher rates could “choke off” our recovery. Certainly, higher rates have slowed down the deluge of refinances occurring, though there are tens of thousands who are still refinancing today. There are two points we would like to make about these concerns.
First, the higher interest rates are a sign of economic recovery and that is a good thing. We are seeing signs of recovery everywhere with the vaccination effort ramping up, in economic reports and in more optimistic forecasts. The recent addition of over 900,000 jobs last month was a great sign and many analysts are predicting an economic growth rate of over 5.0% this year with the passage of the latest stimulus bill.
The second point is that interest rates are not high. The Federal Reserve is keeping short-term rates near zero and long-term rates, such as mortgages, are still near historic lows. Even in the aftermath of the Great Recession, rates on home loans averaged higher than they are right now. Thus, rates at this level are not endangering the recovery in any way, shape, or form. If rates stay close to where they are today and the economic recovery continues to accelerate, it could be a pretty good rebound year.