Mortgage rates are still too high?

Paul Krugman argues that mortgage rates should be (and have generally been) about a point and a half above 10-year Treasuries.

Mortgage rates are still too high

mortgage-treasury spread

The persistence of the spread offers one opportunity for quick economic stimulus: declare that Fannie and Freddie are backed by full faith and credit, and if that doesn’t work, have the Treasury borrow on their behalf. This can bring mortgage rates down by more than 100 basis points. By itself, that’s not nearly enough to turn the economy around, but it could really help the economic recovery package.

The 10-year rate was 2.85% on Christmas Eve, down from 3.45% at the beginning of the month.

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