Newspapers are filled with terribly negative economic news about stock investments and the value of various currencies around the world. The negative headlines can really start to affect your outlook and mood. But one of the things about economics is that ultimately things are self correcting. I want to give you a simple example.
Do you know that mortgage interest rates have dropped to the lowest level that’s ever been recorded? You have 15-year refinances at 3.5% and the average 30-year mortgage trending at below 4.5%. (I remember I once got a home loan for 8.5% right before interest rates went up to 20%. People thought I was a lucky dog because I beat the rate hike. But right now we’re talking about rates that are half the “steal of a deal” I got back then.)
Of course, a mortgage refinance may not be relevant to you. But there are still any number of situations where it may work. Refinancing into a low rate changes the economic equation of the country, person by person. Suddenly, that person has more money to save for the future and more money to spend on various purchases. It sets the table for a recovery.
The other thing that’s looked at from the wrong perspective (in my belief) is what’s happened with housing prices. Yes, somebody who bought in mid last decade is hating life right now if they’re still sitting in that house because of what’s happened with real estate values. But if you think back to five or six years ago, one of big things was that people who were trying to buy a first home couldn’t because prices were out of reach.
Homes are now the most affordable for first-timers that they’ve ever been. Take that and combine it with the low interest rates and it all plants seeds for the housing recovery that ultimately will come.
So I just want you to remember that economies go through cycles when you hear a scary headline. We’re in an irrationally pessimistic stage right now. No doubt about that. But I’ll leave you with one last signal of the coming recovery. American companies are reporting record profits right now. I’m not talking mediocre profits, I’m talking record profits. That again is another part of setting the table for the recovery when it does come.
Editor’s note: This segment originally aired Aug. 15, 2011