NEW YORK (Reuters) – Interest rates on U.S. 30-year fixed-rate mortgages dropped for a ninth consecutive week, reaching their lowest level in 37 years, according to a survey released on Wednesday by home funding company Freddie Mac.
Interest rates on the 30-year fixed-rate mortgage dropped to an average of 5.10 percent for the week ending Wednesday, down from the previous week's 5.14 percent, Freddie Mac said.
The 30-year fixed-rate mortgage has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971.
"Interest rates for 30-year fixed-rate mortgages fell for the ninth straight week and represented a third consecutive all-time record low since Freddie Mac's survey began in April 1971," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.
Mortgage rates have dropped dramatically ever since the Federal Reserve unveiled a plan last month to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae, Freddie Mac, and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
Mortgage rates appear destined to head even lower.
The Fed on Tuesday moved forward aggressively with an effort to drive down mortgage costs, setting a goal of buying $500 billion in mortgage-backed securities by mid-2009.
The battered housing market is critical to the U.S. economy, with a wide-ranging impact from the construction industry to the sale of appliances and furniture. After hurting growth for multiple quarters, an improvement in the housing market could portend a turnaround for the world's largest economy, which has been in a recession since late last year.
The housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices.
To understand what will cause the recession to end, we must understand what caused the recession. There were many causes, but the most visible culprit was an uncontrolled real estate boom. First it was the sub-prime crisis halting the boom. The government indicated that real estate would weather the crisis. Well, the real estate market did not weather the crisis. Then the government said the economy could weather the real estate crisis. As we pointed out in The Real Estate Report 12 months ago, as the real estate market goes, so does the economy. The housing industry directly or indirectly employs about one-fifth of Americans, depending upon how the numbers are counted. You can't have a weak link in a chain which is that significant of a segment of the overall chain. Now the recession has spread across the globe because of the importance of our economy.
So, when will the recession end? The end of the weak real estate market will bring the end of the recession. Of course, it is likely that you will then ask us, when will the real estate market become strong again? Here we would suggest you look at the cost of ownership vs. the cost of renting. At the height of the boom, the cost of owning was significantly higher than the cost of renting--though some of these costs were masked by easy lending standards and innovative products. Now housing prices are going down and so are rates. There are already areas of the country that are reporting that owning is becoming cheaper than renting--especially after taxes are taken into consideration. When we reach this point in the majority of the country, the price of housing will stabilize. And when prices stabilize, banks will be more willing to lend. This cycle will lead us out of the morass. When will that happen? We wish we had a crystal ball, however, we do know that the lower rates go, the more quickly the date is likely to arrive.
The Markets
Mortgages continued their assault on record lows as they dropped for the 11th week in a row. Freddie Mac announced that for the week ending January 15, 30-year fixed rates averaged 4.96%, down from 5.01% the week before. The average for 15-year fixed rose slightly to 4.65%. Adjustables fell as well with the average for one-year adjustables decreasing to 4.89% and five-year adjustables falling sharply to 5.25%. A year ago 30-year fixed rates were at 5.69%. "Rates for 30-year fixed rate mortgages fell for the 11th straight week to another record low, due in part to the slowing economy and government actions," said Frank Nothaft, Freddie Mac vice president and chief economist. "So far, both the U.S. Treasury Department and the Federal Reserve have added over $100 billion in liquidity to the mortgage market since September 2008, which put downward pressure on rates for fixed-rate mortgages. The Federal Reserve may add up to an additional $570 billion more this year, based on its November 25, 2008 announcement, to further shore up mortgage lending and keep rates low. In December, the unemployment rate rose to 7.2 percent, the highest since January 1993, and the economy lost 2.6 million jobs over 2008, the largest annual drop since 1945. That brought down yields on Treasury securities."
By Sandra Bullock- USA Today
Last week, the average rate for a fixed-rate 30-year mortgage was 5.68%, down sharply from 6.34% a year ago, according to Freddie Mac (FRE). The drop in rates has prompted a surge of refinancing as homeowners look to get out of adjustable-rate mortgages or lower the rate on their fixed-rate mortgages. Applications for mortgage refinancing rose 22% for the week ended Jan. 25 from the week earlier, the Mortgage Bankers Association says.
Should you jump on the refi bandwagon? Unless you're already paying a low fixed rate, it's certainly worth considering, especially if you plan to stay in your home at least several more years.
Some borrowers may be tempted to hold out in hopes that rates will fall even more. But that's risky, says Bob Walters, chief economist for Quicken Loans. Long-term mortgage rates are near historic lows, he notes, which means they're more likely to rise than fall. The Federal Reserve reduced short-term rates by half a point last week and signaled that it might cut rates even more in the next few months. But while Fed cuts typically lead to lower rates for credit cards and car loans, the Fed doesn't influence long-term mortgage rates. These rates track 10-year Treasury notes, which tend to respond to changes in the economy.
In fact, "There are times when short-term rates go down and mortgage rates go up," says Jim Svinth, chief economist for LendingTree.com, a website that connects borrowers with lenders.
Home | Neil's Two Cents
Copyright © 2010 Laurus MortgagePortions Copyright © 2010 a la mode, inc.Another XSite by a la mode, inc. | Admin Login| Terms of Use| Site Map
