Interest rates in Lancaster County PA continue to be quite low by historical standards.  According to the Lancaster County Association of Realtors, a poll of local lenders as of April 27, the latest figures available, averaged 5.04% for fixed 30-year mortgages, and 4.71% for 15-year loans.

Of course, these low rates reflect a soft market - but if you are in the market for a home anyway, this is an unusually good time to purchase.  And for first time buyers, the $8,000 First Time Buyer Tax Credit is still in effect.  (Please feel free to contact me for details on this great program.)

For buyers, I think it would be a mistake to wait until interest rates get any better.  It's entirely possible that rates are about as low as they are going to become.  In addition, it's quite likely that within the next six months to a year, we will start experiencing a reemergence of inflation, due to the incredible level of government spending.

The government doesn't possess the money it's spending.  Much of it is being borrowed, and what can't be borrowed is being printed.  In the long run, this can only lead to a devaluation of the dollar.  Countries like China and Russia are even hinting about going to an alternative currency in the future other than the U.S. dollar, due to the uncertainty that the dollar will remain strong.  An alternate global currency would accelerate even more the devaluation of our dollar as there becomes less demand for it.

What's the result of the devaluation of the American dollar?  Prices go up, for one thing.  But while it may look like our home values are going up, the impression is deceiving.  In fact, the increased number of dollars it takes to purchase a house in times of inflation is not the result of increased value - it's the result of needing more dollars of lower value to purchase the same home.

So how does all this relate to interest rates?  When lenders make long term loans, they expect to make their capital value back plus a profit.  If they expect that the dollars they lend are going to come back to them with less value, they're going to want more dollars back - which manifests itself in higher interest rates.

Bottom line - for the time being, with inflation low due to the soft economy, interest rates are probably pretty close to as low as they're going to get.  When the economy starts strengthening, inflation is waiting in the wings - and with it, higher interest rates. 

Don't put off a home purchase because you think interest rates may sink even lower.  When the economy comes back - as it inevitably will - higher prices and mortgage rates will make today's seem like a bargain.

©BrianSchulman2009