Mortgage rates are at an all-time low. Refinance now! These rates can’t stay at this rate forever!

These are the pitch lines being thrown around at the moment, and, sadly, they are all true. Mortgage rates are at lows not seen in a very long time, and hopefully, we never will again. Shocking as it may seem, these low interest rates are great if you are buying a home, but they are indicators of problems in the marketplace. How does this work? Well, it all starts with the Federal Overnight rate target.

The Fed regulates the money supply

The Federal Reserve Board of Governors uses several options to determine how much money they want in the economy. By changing the amount of money in the economy, they influence the interest rate that banks charge. This interest rate affects how much money is in savings and how much is spent.

The lower the interest rate, the more that is spent

Have you ever been to a store where there was a sale that you weren’t expecting? Or maybe a clearance item that you just have to have? Well, the more money available in the market will lead to more money being spent in the economy. Normally that is a really good thing for any economy. Any increase in economic transaction means a positive stimulus to the economy. But there is such a thing as “too much of a good thing.”

Supply and demand forces market reaction

As more money is available, and more houses are purchased, then the value of houses goes up. As the price of houses goes up, that same effect is mirrored for every resource in the market, from milk to airline tickets. As the price of everything goes up, then every dollar in your pocket buys less and less. This effect is called inflation, and it is the market’s reaction to a glut of money.