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Wednesday December 22, 1999

Y2K may temporarily cut mortgage rates, Realtors group says

THE WASHINGTON POST (Published: Wednesday, December 22, 1999)

WASHINGTON -- Fallout from Y2K problems around the world will temporarily push U.S. mortgage rates below 7 percent, giving consumers a short window to refinance or get a mortgage at the lowest rate in two years, according to the chief economist at the National Association of Realtors.

At a Washington news conference Tuesday morning, James F. Smith predicted that in the next nine days, billions of dollars will flow into the United States from foreign investors who are worried their countries are not ready for the changeover to the new millennium. Problems will occur if computer programs that register the year with two digits haven't been repaired and identify 2000 as 1900.

"Most of the rest of the world is not ready for Y2K," said Smith. "Germany isn't ready, Japan, the French, none of them are ready."

Smith conceded that he had expected the influx of foreign money, of which there is no evidence, to already have begun.

In its year-end outlook, Fannie Mae predicted no such short drop in mortgage rates because of a Y2K-generated money influx, saying instead that mortgage rates would rise over the first half of next year.

Smith said the Y2K effect on rates would be only temporary, with mortgage rates dropping to about 6.9 percent on a 30-year fixed loan during the first month of next year. He called it a short "window of opportunity" for any homeowner who didn't refinance their mortgage when interest rates reached rock-bottom two years ago.

He said rates then would edge back up, to an average of about 7.2 percent, in 2000. Mortgage rates were at an average of 7.86 percent last week.

Aside from any Y2K glitch, Smith predicted that the year 2000 will be a good one in terms of housing and interest rates.

-- Homer Beanfang (Bats@inbellfry.com), December 22, 1999

Answers

Geez I hope SO! Despite the email, I am looking for a house, and hoping that y2k will hold off long enough for me to nab one. I would love to get a rate below 7%. (Apart from the general hope that nothing bad happens to anyone who doesn't really deserve it, this is my main reason for wishing y2k won't be bad)

-- Little Pig (littlepig@brickhouse.com), December 22, 1999.

Gee, my main reason for hoping y2K won't be bad is the fact that I would hate to see death and destruction. I give a rats ass about the interest rate.

-- (Here@today.com), December 22, 1999.

The Kook Klan voted and we thinks it may go down to 0% for 0 years at an average balance of $0.

Y2Kook

-- Y2Kook (Y2Kook@usa.net), December 22, 1999.

Here: I should have been more concise. In general, I am hoping y2k is minimal to avoid, as you put it, death and destruction. However, among my internal reasons for hoping it is minimal, being able to get a house is at the top, followed by various other luxuries like a Honda Africa Twin, a trip to China, etcetc which I won't be able to do if TSHTF even a little.

-- Little Pig (littlepig@brickhouse.com), December 22, 1999.

We'll see what happens...the interest rates will probably change a lot. One major factor is how much the money supply is expanded during rollover and after. It will be hard to contract the money supply... If the money supply expands a lot, the inflation rate will increase, and interest rates with it...

On the other hand, if there is a significant business slowdown (which many of us forsee), the FOMC may well attempt to LOWER interest rates in order to stimulate the economy.

One of the dire cases could be extreme stagflation...a dying economy with high inflation!

-- Mad Monk (madmonk@hawaiian.net), December 22, 1999.

If Y2K problems do not arise early in Jnauary, a number of Wall Street analysts have said that they expect the Fed to issue a few "Fed-speak" warnings around mid-January and then slam in at least a half-point rate hike at the February meeting. Mr. Greenspan obviously takes Y2K very seriously; otherwise he would not have allowed all this "Y2K-ready" liquidity to pump even more air into an already over-inflated stock market.

Unless things go very seriously sideways, Mr. Greenspan will begin hiking interest rates until he sees some definite cooling off. It took almost three full percentage points last time he had to do it. If things go "wnorg" in oil, we'll also see inflationary pressures, so it's a good bet that rates aren't coming back to their historic lows anytime soon.

I got lucky and locked in 6.5 on my 30-year fixed. Sometimes it's better to be lucky than smart.

-- Mac (sneak@lurk.com), December 22, 1999.

If my mortgage company's computers roll over to 1900, I wouldn't mind refinancing at those rates.

-- (RUOK@yesiam.com), December 22, 1999.