What is the future of home loans?

BY busadmin  July 22, 2008 at 11:07 AM EST

Question/Comment: What do you think is the future of home loans: higher interest for lenders’ safety or lower interest to attract borrowers?

Paul Solman: You force me to trot out yet again what I once heard the late economist John Kenneth Galbraith say when a reporter asked him the future of interest rates: “There are two kinds of economists: those who don’t know the future and those who don’t know they don’t know.” Like Galbraith, I’m one of the former. Unlike him, I’m not even an economist.

The best collective guess, you would think, is people putting their money where their mouths are. That would be the market. Specifically, in this case, the bond market. And right now it is saying that interest rates will rise.

One more comment: interest rates are determined by the supply and demand for money, worldwide. Any lender that offered “lower interest to attract borrowers,” in your words, would soon go out of business if the prevailing interest rate in the real world were higher. That’s the iron law of competition.