Low Rates

WASHINGTON -- For most of this decade, buyers of homes and businesses enjoyed "easy" credit, allowing them to get low-interest loans with few questions asked. Suddenly, credit has become "tight." That means people with spotty credit records are no longer getting mortgages, the largest home borrowers are paying higher interest rates, and some corporate buyouts are in jeopardy. The changes have spooked financial markets, sending the benchmark Dow Jones industrial average last week more than 1,000 points below the record 14,121.

Low mortgage interest rates and financial assistance packages encouraged homebuying in February, boosting sales in the Baltimore area by 9 percent, the Greater Baltimore Board of Realtors said yesterday.For the month, 852 homes sold, compared with 781 during the same period a year ago. The average sales price fell 4 percent to $118,729, the board said. "The market has remained steady throughout metropolitan Baltimore and is certain to continue in the next months," said Adam D. Cockey Jr., president of the Realtors' board.

Spurred by attractive interest rates and improved consumer confidence, new-home sales in the Baltimore region were up 16 percent to 2,259 units during the third quarter -- the third consecutive quarterly increase, according to a housing market profile released yesterday by Legg Mason Realty Group Inc."Those low rates are making homes more affordable," said Harvey N. Singer, the group's senior vice president. "People have been wanting to buy houses."The survey, which tracks new-home sales in subdivisions of 20 or more houses in Baltimore and five surrounding counties, showed the biggest growth in townhouse sales, which grew 30.8 percent during the quarter compared with the same period a year ago.Detached-house sales were up 15.5 percent, and sales of multifamily units, such as condominiums, were down 9.5 percent, the survey said.

With government spending rejected as a stimulus, Americans have become dependent on low interest rates to revive the economy. But low rates alone cannot expand the economy any faster than the slow pace at which it is now growing.Housing and auto sales have risen as a result of low rates, which make financing more affordable, and retail sales have also benefited. But a wide range of economists, executives and industry experts say that low rates cannot alone squeeze much more out of these key industries, unless obstacles like wage stagnation and high prices of some homes are overcome.

NEW YORK -- Stocks closed modestly higher yesterday, as a report that showed the economy lost jobs in August drove long-term interest rates down to a record-low closing of 5.94 percent."

Despite nagging weakness in the U.S. economy, the Federal Reserve was right to resist a further lowering of interest rates last week. Not only did it underscore the political independence of the Fed; it sent a message that this country is waiting for the German Bundesbank to drop its unconscionably high rates so other governments can deal with a recession that threatens to spread worldwide.So acute is the situation that it is not uncharitable to hope Germany gets a good, hard dose of recession itself to jolt the Frankfurt institution to action.

Baltimore-area home sales rose 14 percent in September compared with a year ago -- thanks primarily to low mortgage rates, the Greater Baltimore Board of Realtors reported."

CHICAGO -- The dramatic rise in U.S. housing starts during February shows that consumers were rushing to take advantage of a relatively low interest rate environment, economists said.Also, good weather conditions and expectations that first-time home buyers may receive tax credits increased demand in the housing industry, they said.The Commerce Department Tuesday said housing starts rose 9.6 percent in February to a seasonally adjusted 1.304 million units, the highest level since March 1990.

NEW YORK -- Interest rate cuts may well prove to be the right medicine for the ailing economy, but they could also carry some side effects for the nation's banks.Overall, bankers are generally delighted that rates have fallen so dramatically. Their hope, of course, is that loan demand will be stimulated, reinvigorating the economy. Investors, using the same logic, have pushed up bank stocks in recent weeks.The discount rate, after five cuts in the last year, now stands at 3.5 percent, its lowest level since 1964.

"Are you satisfied with less than 4 percent?" asks a newspaper advertisement for PaineWebber."If you're tired of watching CD rates go down, take a look . . .," NTC says a Scudder Investment Services ad.Investing has been awash with suggestions since the high interest rates of the past have dwindled. But the risk often is played down."The higher the return, the greater the risk" is a maxim that is especially appropriate in times like these. Risk vs. reward has become the financial theme of the 1990s.

When it comes to the duration of fixed-income investments, many experts advise investors to keep it short. Interest-rate yields are likely to remain stuck at low levels for a while. Once the economy starts to recover, however, inflation can be expected to revive and bring with it higher interest rates. That's why, experts say, you shouldn't lock in today's rates for too long. "Most people feel - and we agree - that at the back end of this recession there will be pressure on interest rates to move higher," said William Hornbarger, fixed-income strategist for Wachovia Securities.

WASHINGTON -- Alan Greenspan's reputation is under siege, and he is incredulous. Hailed three years ago as "the greatest central banker who ever lived," the retired chairman of the Federal Reserve now is being criticized for his management of the U.S. economy before he retired in 2006. The Fed's low rates and laissez-faire regulatory oversight during his final years are widely blamed for sowing the seeds of today's financial crisis - one that began in the U.S. housing market and is now battering banks, stock markets, borrowers and consumers around the world.

WASHINGTON -- For most of this decade, buyers of homes and businesses enjoyed "easy" credit, allowing them to get low-interest loans with few questions asked. Suddenly, credit has become "tight." That means people with spotty credit records are no longer getting mortgages, the largest home borrowers are paying higher interest rates, and some corporate buyouts are in jeopardy. The changes have spooked financial markets, sending the benchmark Dow Jones industrial average last week more than 1,000 points below the record 14,121.

BUSHUJU, Democratic Republic of Congo -- In this mountaintop village near the hilly eastern border with Rwanda, the vaccination rates are as dismal as the sweeping views are breathtaking. Measles: 28 percent. Diphtheria, tetanus, whooping cough: 22 percent. Tuberculosis: a mere 16 percent. The nurse's assistant who is the sole health provider for Bushuju's 4,500 people listed some reasons for the low rates - besides the general postwar chaos and confusion: He was busy. He had trouble telling the drugs apart.

A year ago, borrowers consolidated education loans in droves to lock in the lowest interest rates in the federal loan program's 40-year history. Now, students and parents are once again advised that if they have any Stafford or PLUS loans left to be consolidated, do it before July 1. This may be the last time to use consolidation to lock-in exceptionally low rates before they go up and changes in the program kick in. "Anything after July 1, game's over,"...

THE LOW interest rates of the past few years have been particularly frustrating for retirees and others who favor conservative certificates of deposit for income. Now that rates are heading upward, these investors face a new challenge: Do they lock in money now in a fixed-rate CD and risk missing out on higher rates later, or wait? To remove some of the guesswork - and to attract or keep deposits - banks offer a variety of CDs that provide interest-rate flexibility. Some banks, for example, are promoting bump-up CDs that give investors a one-time option to increase their rate if interest rates rise.

IT'S THAT time of year again when the thoughts of debt-laden college graduates turn to student loan consolidation. The new variable rates on federal student loans will be set in two weeks and take effect for one year, beginning in July. Experts predict the new rates will be the same as today's incredibly low rates or dip a little more. Right now, the rate on Stafford loans in repayment is 3.42 percent. Borrowers don't have to do anything to get the new rate for the coming year. But by consolidating their loans into a single fixed-rate loan, they can lock in a low rate for terms that can last 10 to 30 years, depending on the amount of debt.

IT HAS BEEN years since investors worried about rising interest rates. After a series of rate cuts by the Federal Reserve to pull the economy out of a 2001 recession and shake off its remnants, investors have grown accustomed to the lowest rates in decades. That's about to change. In a recent update to Congress, Fed Chairman Alan Greenspan said a key short-term interest rate under Fed control would have to be raised at some point to stave off inflation. "They are heading higher. The issue is how much and over what period of time," said Samuel A. Lieber, president of Alpine Mutual Funds in Purchase, N.Y. Many factors can influence the timing and degree of Fed action, but experts are confident that there won't be a repeat of what happened in 1994, when the Fed began raising rates after another period of low rates coming off a recession.

GOT A nice, 4.8 percent mortgage? You should thank your mortgage banker, who canceled her trip to Provence and slept in her office to process loans for you and three-fourths of metro Baltimore when rates hit bottom in June. You should thank the Japanese, who think 4.8 percent is a high rate and who consequently financed almost $50 billion in U.S. mortgages this year through May, according to the Treasury Department. And you should thank Ben S. Bernanke, the Federal Reserve governor who helped convince the Japanese and everybody else that the Fed and its bottomless pockets might join the madness and buy mortgages.

Low mortgage interest rates and financial assistance packages encouraged homebuying in February, boosting sales in the Baltimore area by 9 percent, the Greater Baltimore Board of Realtors said yesterday.For the month, 852 homes sold, compared with 781 during the same period a year ago. The average sales price fell 4 percent to $118,729, the board said. "The market has remained steady throughout metropolitan Baltimore and is certain to continue in the next months," said Adam D. Cockey Jr., president of the Realtors' board.