Low mortgage rates baffle Greenspan

By Brett Arends
Thursday, February 17, 2005
Bostonherald.com

If you haven't refinanced your mortgage recently, perhaps you should.

That, at least, appeared to be the hint from Federal Reserve Chairman Alan Greenspan yesterday during semi-annual testimony to Congress.

Greenspan said he was baffled that long-term interest rates were currently so low, calling it a conundrum" that defied experience.

It may simply be a short-term aberration" of the market, he warned.

Meaning: watch out.

If you're waiting to refinance, this is the opportunity you've been waiting for," argued Greg McBride, economist at Bankrate.com. When even Alan Greenspan is mystified about why rates are this low, that's a pretty clear signal that they will ultimately move higher."

Long-term mortgage rates, which are set by the market, recently hit an 11-month low of 5.59 percent. Usually they rise when, as recently, the Federal Reserve raises short-term borrowing costs.

Ken Taubes, fixed-income director at Pioneer Investments, compared Greenspans's warning to his famous late-1990s caution against irrational exuberance" on Wall Street.

And Putnam economist David Kelly called it fair warning and last call to people still piling into the bond market: Long-term rates shouldn't be this low."

However, Greenspan slyly omitted the remarks from his speech, letting them appear only in his written testimony. Bond prices rose only slightly yesterday.

His spoken address was sunnier, arguing the economy was expanding at a reasonably good pace, with inflation and inflation expectations well anchored" and predicted notable increases in employment" ahead.

Merrill Lynch economist Cathy Bostjancic noted Greenspan also quietly raised this year's economic growth forecast to 3.75 percent from 3.5 percent.