The stock market, debt crisis, and you! - Virginia Beach Neighborhoods

Mortgage rates are tied to the 10 year US Treasury bond. While the Chicken Littles were screaming that we were going to default on our debt and mortgage rates were going to shoot up, exactly the opposite happened. The yield on the 10 year note (the interest rate that the US government pays to investors for borrowing their money) has been steadily dropping both before and after the “debt crisis.”

Despite all the hoopla surrounding the default that didn’t happen, the US was never going to default on its debt. For starters, the cost to pay off maturing treasury securities this month is about $30 billion vs $170 billion in tax revenues. Sure, we spend more than we make, but servicing our dept accounts for only a small fraction of what we actually spend. We can most certainly afford it.

Those who have extra cash to invest (like China) have no better place in the world to put it than in US Treasuries. This has been demonstrated this week with the stock market down 500 points one day, up 500 points the next, and then down 500 points the next. This market is not rational, is completely unpredictable, and is driven by fear and institutional investors. It is not a safe place to be.

The S&P downgraded US debt from AAA to AA+. Does anyone know what that actually means? Let’s not forget that the S&P was putting AAA ratings on worthless mortgage securities as recently as 3 years ago. The real world investors who have billions of dollars to invest do not care what the S&P says. They are putting their money in US Treasuries as shown by the steady drop in interest rates. The US may not be perfect, but it is better than everything else when it comes to a safe harbor for your cash (again, just ask China).

All of this is important to you and me because it affects the affordability of real estate. My clients are locking in at below 4.25% for 30 year VA loans. There is opportunity in every market.

It costs you 20% less today to buy a home than it did in 2006 simply because the mortgage rates are lower. Combine that with a 20-30% drop across the board in home values and it is easy to see that your monthly payment today would be around 50% less than it would have been with a purchase in 2006. While real estate is not something I would recommend as a short term investment, it is nevertheless a great long term investment. Sometimes the good deals are hidden in plain sight for everyone to see. Today, real estate is that good deal.