What is really a fair mortgage rate?

[Buzzed]

Quote from Martinghoul:

As I said in my post, the prevailing nominal interest rate has to be a function of a) productivity/population growth rate (use real GDP as a proxy); and b) rate of inflation (in our stylized case, the growth of money supply). Let's say it's 5%. How do you arrive at over double the savings rate? What's the basis for double? Why not triple or quadruple? Why not half the savings rate? You're applying a completely arbitrary multiplier for no good reason... In contrast, the number I have given, arnd 100 - 300 basis points over the main rate, has held in the oldest, best regulated and most well-functioning mtge mkt in the world, Denmark.

Savings rate is 5%. The bank is borrowing that money at that rate. To make money, the bank needs to lend that money out at a higher rate than 5% right off the bat. You cannot lend at half the rate you are borrowing that money with.

You are right though, it doesn't need to be double the rate. At the time it made sense to me for some reason.

 

[S2007S]

Until the intervention within the market place dissipates, mortgage rates will stay artificially low for years, any uptick in rates above the 10 year trend line that is around 6% would push buyers out of the market in these economic conditions, I believe 6.5%-7% would really keep housing from moving anywhere, that is why they bought MBS and artificially created low rates to spur demand in housing.