Now that President Barack Obama has averted the first-ever U.S. default by signing off on a higher U.S. debt ceiling, the country is returning its focus to the sluggish economic and housing recovery. A consequence of plummeting Treasury yields surrounding the default uncertainty has been lower mortgage rates -- average 30-year-fixed mortgage rates are well below 5 percent -- but homebuyers still aren't biting.
"A barrage of disappointing economic reports in the past week has caused bond yields and mortgage rates to plunge," says Greg McBride, CFA, chief financial analyst at Bankrate. The lack of confidence in the economy and job market is keeping potential buyers on the sidelines even though "the specter of ongoing economic weakness means mortgage rates will remain at very attractive levels," he adds.
But how long will rates remain low? Even though the economy is weak, there are other concerns that could cause rates to rise, including current debate among federal regulators on risk-retention rules requiring banks to retain 5 percent of the risk on some loans. If the cost of lending rises, you can be sure it will be passed on to borrowers in the form of higher rates.
At least the group of senators, known as the "Gang of Six," gave a reprieve to the mortgage tax deduction for now. One proposal going into the debt talks was that the deduction would be limited to mortgages of $500,000 or less, instead of the current $1 million and only eligible on primary residences. The deduction will cost the Federal Treasury approximately $131 billion next year, making it an ongoing target in deficit-reduction efforts.
Keep up with your wealth and follow me on Twitter.
Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.