In the weak economy of the past year or so, mortgage borrowers have been the clear winner, as mortgage rates have been down to record lows. The flip side of that is that depositors have been the losers, as savings account rates, money market rates, and CD rates all shrunk to microscopic levels. Economies tend to run in cycles of action and reaction, however, so it’s possible to see how today’s low mortgage rates could lead to higher bank rates down the road. Yesterday’s report on existing home sales provides a clue to how that sequence of events might play out.
According to the National Association of Realtors, sales of existing homes grew by 7.4% in November, and were up 44% compared with one year earlier. This brought existing home sales to their highest level since February of 2007.
One reason for the surge was the original expiration date (since extended) for the new home buyer tax credit. However, November’s jump in existing home sales was a continuation of a recent trend, which also owes something to low mortgage rates. This is where the cyclical nature of economics comes into play.
Low interest rates have been a key component of the government’s effort to stimulate the economy and stabilize the banking sector. If this succeeds in reviving the housing market, it will raise lending demand. A more profitable lending business will enable banks to pay more to attract capital from depositors — and that’s how savings account rates, money market rates, and CD rates could ultimately benefit.
That may be a long way off, but for depositors in today’s low-rate environment, a light at the end of the tunnel is better than no light at all.
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