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Banking on Low Interest Rates

With the economy continuing to grow and unemployment falling, more consumers are taking advantage of low interest rates

By Molly Priddy

In the seven years since the recession hit the Flathead Valley, economists have used many terms to describe the financial straits and marketplace woes, from “dire” to “rock bottom.”

Now, with the economy continuing to gain momentum and unemployment rates nearing their pre-recession levels, the descriptors reflect the change: “cautious optimism” and “sweet spot.”

By the end of 2014, Montana’s unemployment rate was at 4.2 percent, while the U.S. rate hit 5.6 percent. In Flathead County, 2014 ended with 6.2 percent unemployment, higher than both the state and national stats, but still better than the early part of 2010, when the county sat around 12 and 13 percent unemployment.

A rebounding economy means more people are working, and due to the relative stability, people are feeling freer to spend their money again and take on projects or purchases they may have been waiting on.

Historically low interest rates are helping make these financial decisions possible. The Federal Reserve has kept interest rates at near zero for six years in an attempt to revive the national economy and bolster employment.

Now that the nation seems to be recovering, there has been talk of the Fed increasing interest rates. At the end of January, Janet Yellen, chair of the Federal Reserve, said rates would not increase before June, if at all.

However, dropping oil prices have contributed to tempering inflation, according to Brad Eldredge, the executive director of institutional research, assessment, and planning at Flathead Valley Community College, so there’s less need to increase interest rates.

“With the declining oil prices, I think it’s allowing them to keep interest rates lower for longer, which is really good; it’s really good for the economy in general,” Eldredge said. “People can borrow money inexpensively and put that money to work.”

The interest rate on a 30-year mortgage in January was 3.67 percent, according to The Federal Home Loan Mortgage Corporation, known as Freddie Mac. It’s an astonishingly low rate, said Bob Nystuen, president of Glacier Bank.

Now that property values are bouncing back, Nystuen said his bank is seeing more clients refinancing their mortgages.

“They’re feeling a little bit more secure in their future,” he said. “They’re using the cash to build a deck or get rid of consumer debt, and take advantages of low rates.”

Before the recession hit in 2008, interest rates for 30-year fixed-rate mortgages were double what they are now, at about 6.5 percent. At the beginning of the decade, the rates were at 7 and 8 percent, and went as high as 17.5 percent in the 1980s.

So for the economy to sit as it does, recovering with the Fed rate still at near zero, plenty of consumers are taking advantage, Nystuen said. The low rates translate to inexpensive borrowing from financial institutions, and in 2014 Glacier Bank had its best year for construction loans since the recession.

“It’s been a long four or five years to kind of work our way through the downturn,” Nystuen said. “But 2014 was the best year we’ve had since 2008 or 2009.”

Last year showed a stabilizing construction market, with all of the municipalities in Flathead County reporting consistent if not markedly increased numbers of building permits for new projects.

“We’re hearing from some of our building contracting customers that they’ve got work through the rest of this year, and it’s only mid-February,” he said.

Along with construction loans, more clients are coming in for other loans, like those for new cars.

“It’s a great time with consumers to look at trading up their vehicles,” Nystuen said. “They’ve got more money in their pocket at the end of the month because of fuel prices being lower.”

Nystuen and Eldredge said there is a degree of cautious optimism about the current economic situation, and that many consumers could take advantage of low interest rates, causing more positive ripple effects.

“If [the Fed] can keep interest rates low, they can do a lot,” Eldredge said.