One of the financial magazines I read weekly is Business Week. It can be a little bit politically charged, but depending on who’s writing the economics ‘short’, it can be very good.

This week’s is written by Peter Coy. Google his name and you’ll find him to be a bit pessimistic on the economic recovery and not quick to get on band wagons that others are riding. His is a level-headed report of the facts, and he doesn’t generally over play his theories. Just the kind of guy you want to hear good news from.

The article I’m referring to – linked here – will not disappoint you. It explains simply and clearly why Bernanke is so committed to a VERY low rate standard.

His reason in a nutshell:  The economy at large has a ton of excess capacity right now, which will take a long time work through. What do we mean by capacity? You see it practically as high unemployment and high inventory of homes on the market. Both examples are resources that are more plentiful, more in “supply” than we need. It will take a lot of economic growth just to work through what is already here and to use up this excess.

Another reason for extra capacity is the recent rise in productivity. The productivity numbers rose again this month, though they were expected to remain flat. So, not only do we have an excess in resources, we;re also getting more efficient at producing them. This will create slow growth in the economy, in Big Ben’s opinion, and support for his theory is growing.

Take five minutes and read the article. You might also consider who you know who might appreciate this information.

Some concluding thoughts:

WHAT IF BERNANKE IS RIGHT?
Then we’ll have slow economic growth and keep interest rates low for some years to come. We can live with this. Let’s be honest – putting our Lansing hat back on – we’ve been living with it for some years already. But here is where we might see light on the horizon – a bright spot. It may just be Mid-Michigan’s turn for moderate jobs growth. If this happens while the rest of the country (world) is lagging, then we could have both rising home values AND low rates. Let’s not be too much the ‘realists’ to think this couldn’t happen.

WHAT IF BERNANKE IS WRONG?
Then the economy at large heats up, rates rise sooner – not a lot, most likely, but sooner. AND our 401k’s rebound again. We can handle this too! Even if he’s wrong, 1982 inflation and rates are not a likely event based on the slow growth expectations.  At least not for a while.  Most of us who need a fixed rate will get one while they’re low and few will remain by the time anything wild happens.

WHY IS THIS IMPORTANT TO ME?
If you are buying a home or refinancing a mortgage right now, then you should still consider a fixed rate.  Mostly because they’re very low right now (see my blog 24/7 for daily averages).  If you are currently in an Adjustible Rate Mortgage, you should get some advice as to what to do.  Your rate will likely be very low for the next few years.  Let’s not allow fear or greed to dictate these decisions.  A good level-headed decision based on the facts of your situation and the realities of your goals is what is needed.

LAST THOUGHTS
Let’s also be very honest with ourselves. As “smart” as Mr. Bernanke is, he does not know or hold the future.  Only time will tell if his contributions were beneficial. He’s helping us navigate right now, and I am thankful for that, as am I thankful for all like him who are in positions of great weight and difficulty. I would urge us to remember the phrase written ON our money when we think ABOUT our money:  “IN GOD WE TRUST”.  After all, low rates, housing credits, and three shifts running at General Motors will all pass away in time.

Does that mean you should dump your home and rent? Not at all. In fact, if you’re renting now, this may be just the right time to cross over into home ownership.

Some things to consider:

1. Affordability. Prices are very low, but there’s good evidence out there that we’ve seen the bottom and are now starting back up. We may spend some time at this level, we may not, but it’s not likely that we’ll go any lower.

1. Rates have hit an all-time low in the past week. Again, we may be here (or very near it) for months. We may not. But no one’s expecting rates to go much lower.

1. Tax credits. Included in Obama’s stimulus plan is an $8,000 tax credit for first-time homebuyers. This is a credit, not a deduction like mortgage interest, so it represents real tax savings. The program is scheduled to end Dec. 1 of this year, and while it’s likely to be extended, there’s no guarantee of it.

1. Reality. You’re less likely to believe that buying home is an air-tight investment, and more likely to see it for what it is—a chance to own the house you live in, make it your own, grow deep roots, and then look forward (15 years? 30 years?) down the road to no more payments.

So while conventional wisdom may be going through a revision, there’s still plenty of good wisdom out there today that says home ownership is a good thing.

Let’s look over these latest stats and just breathe deep for a minute…

• Single-family starts and permits up. The most depressed segment of the real-estate industry over the past two years, homebuilders, are pulling permits again. Single-family starts are up almost 2% and at the highest levels since last October. Permits for single-family construction are up 6%. That’s 6 of 7 monthly increases for 2009 (March showed a slight downturn).

• Mortgage apps jumped 4% for a 3^rd straight week of increases. The recent drop in rates should see this statistic holding.

• Pending home sales index shows an increase for the fifth consecutive month, the first such streak in six years. A still-glutted inventory will feed this trend for a while.

• NAR’s Housing Affordability Index has the Midwest at a whopping 188, down from an incredible 206 for last month. (The HAI is set against a value of 100, which means that a median-income family can exactly qualify for a mortgage on a median-priced, single-family home. A value of 200 means the same family could “afford” twice as much home.) We need to be careful with this one: affordability is being driven—the larger part of it, at least—by the record number of short sales and foreclosures. So it’s great for buyers, but not a great sign of overall economic health. Look for this one to slip back as the next indicator, home prices, improves…

• Home prices nationwide are on the rise. This is one economic indicator that everyone wants to see rebound as it’s our best sign that the market as a whole is on the mend. Great housing affordability is fine, but no business thrives by holding an indefinite fire sale.

So the encouraging news is beginning to show some consistency to it. And though we’re still being warned that we may bounce along at these levels for some time, still, there’s a sense that we can, at last, stop holding our breath.


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