Mortgage Rates and 9/11

Before the September 11, 2001 attack on New York’s World Trade Center, the country was already in a recession. The impact of that terrible event was not only emotional, it was also economic. The attack had enormous economic consequences on this country and the entire world.

Before 9/11, the index rate was hovering in the seven percent range. This rate started to slip almost immediately, and has been drifting downward ever since. The index rate for September 2001 was 6.86 percent, down from 6.99 percent in August 2001. A year later, September 2002 saw an index of 6.32; September 2003 the index was 5.89, and in September 2004, it was 5.63.

This is a clear example of how geopolitical events can influence the economy in general, and mortgage rates in particular. Indeed, when the Fed sets the inter-bank rate, it takes into account not only domestic politics and current events, but events worldwide as well, considering political events and their repercussions from as far away as the People’s Republic of China.

Historically, political events and tragedies of this magnitude have had a tremendous impact on the economy. The Oklahoma City bombing in 1995 resulted in an immediate economic downturn, and home sales declined 14 percent during the month, and consumer confidence dropped; although these consequences were short-lived.

The Persian Gulf War also had a great impact on house prices and mortgage rates, as consumer confidence dropped to about half its previous level after engagement in the Gulf began. Also, existing home sales, and home prices declined as an indirect result of that conflict.

As the long-term effects of the “War on Terrorism” are already being seen in the economy, the consumer confidence remains low as do current mortgage rates. The housing market, which has been booming over the past few years as a result of low interest rates, may suffer as unemployment rises, real wages drop, and the increasing move to a global economy and offshore outsourcing change the rules of commerce.