Mortgage rates fall below 4%
Thirty-year rates drop to a record low of 3.94%. But will consumers be able to take advantage?
This post comes from Marilyn Lewis at MSN Money.
Mortgage rates broke the historic 4% barrier this week. The average rate for a 30-year fixed-rate home loan fell to 3.94% with an average 0.8 point paid, according to Freddie Mac's Weekly Primary Mortgage Market Survey. (One point is 1% of the loan amount.)
That's the lowest rate Freddie has recorded. "Freddie Mac says the rates are the lowest since its survey began in 1971, and academic research suggests that rates for 30-year mortgages were as low as 4% -- but not any lower -- under a loan program for war veterans in the mid-1940s," says The Wall Street Journal.
Bloomberg BusinessWeek credits "stricter credit standards and the slowing economy" for the dropping rates. Freddie Mac Chief Economist Frank Nothaft pointed to "increasing global economic concerns" and worries that the U.S. recovery is not holding.
Rates drop -- and so do mortgage applications
Rates also fell for 15-year fixed-rate mortgages, an increasingly popular refinancing choice. Rates on 15-year loans have been falling for six consecutive weeks.
Now mortgage buyers are paying an average 3.26% with an additional 0.8 point paid, the Freddie Mac survey found. Freddie is one of the huge, government-run (GSE) mortgage companies that buy mortgages from retail banks. Post continues after video.
Last week, 30-year fixed rates were at 4.01% on average. A year ago they averaged 4.27%, which seemed phenomenally low at the time.
A week ago 15-year fixed-rate mortgages averaged 3.28%. They averaged 3.72% at this time last year.
Despite record low lending rates, however, strict bank lending standards and a lack of equity in their homes prevent most consumers from being able to take advantage of them.
Mortgage purchases fell 4.3% in the week ending Sept. 30, according to the Mortgage Bankers Association's weekly survey of mortgage applications, here at MortgageNewsDaily.com.
"What if the 30-year mortgage rate fell below 4% and few people cared?" quips The Journal.
“It seems quite clear that the effects of the lower mortgage rates have been more than offset by the recent stagnation in employment and decline in real incomes,” BusinessWeek says, quoting a note to clients from Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto.
Economic stress is blamed
In fact, given the low prices banks are paying for money, retail mortgage-interest rates should be even lower, The Journal says.
But banks have laid off large numbers of staff, leaving them short-handed and looking ways to keep business manageable: "To manage volumes, they’ll sometimes raise the spreads between their borrowing costs and the rates that are offered to consumers," The Journal writes.
Economists are increasingly articulating their worry about the plight of American consumers. A solid recovery will depend in great part on a revival of consumer spending.
In a prepared statement, Freddie Mac Chief Economist Frank Nothaft credited the drop in mortgage rates to "a sharp drop in 10-year Treasuries early in the week as concerns over a global recession grew."
He also pointed to Federal Reserve Chairman Ben Bernanke's testimony to Congress's Joint Economic Committee on Tuesday in which Bernanke "said the recovery is close to 'faltering' and stressed the need for lawmakers to act."
Writes The Journal:
Eric Rosengren, president of the Federal Reserve Bank of Boston, spoke to the problem facing policy makers’ inability to help consumers benefit from low rates in a speech last week in Sweden. Falling home prices “have disrupted the transmission of monetary policy,” he said, resulting in “a situation where the availability of credit is more important in many cases than the cost of credit.”
Low rates could give more urgency to a recent push by the White House to fix an administration effort that allows homeowners to refinance their mortgages if they owe more than their loans are worth. The program is open to borrowers with loans backed by Fannie Mae and Freddie Mac.
“Clearly getting more money into the hands of homeowners who would spend it could help to fuel GDP growth,” said Mr. Rosengren.
More on MSN Money:
- The rule that could kill the housing market
- Return of the 20% down payment?
- Calculator: How much house can you afford?
- 10 first-time homebuyer mistakes
- Should you rent out a room?
VIDEO ON MSN MONEY
I hear all you folks!! What a tragedy!! We're going back to expecting people to be able to pay their mortgage off instead of giving loans to people who will be leaning on the taxpayer to bail them out. You actually have to apply, be checked out to make sure you're credit worthy and, oh my god, that takes a couple of months. But then you've grown up in a world where loans were approved in ten minutes. Easy money flowed and party time for all.
Course I figure most of you are way too young to remember when things were much different, money wasn't given to anyone walking through the door. But then the government wasn't sitting on a couple of trillion of toxic mortgages, running red ink by the ocean full, people paid their way and all the other things that have gone by the wayside past 30 yrs or so.
exactly papa - rates for the upper 1%.
i did a refi back in january this year. with an 805 credit number, 80% equity, a decent job, and 1 year of cash in the bank for my reserves it took 2 months to finally get approval. it was like pulling teeth!
the simple joe who doesn't over extend and has lower credit than mine and even 3 months cash in the bank will continue to be screwed by the banks
What about all the people that are upside down in their homes and want to stay in them, and don't want to become a walk-away or foreclosure statistic. I can't refinance to take advantage of the lower rate because my house is worth half of what I paid for it.
Typical- actual rates go upat least .250 to rate for both 30 year and 15 fixed and the news a week late quotes histric lows...
Once the news is posted, it is too late! HOMER
"123 Refi" recommends that since there's a higher volume of refinance applicants now, it's best to be prepared and gather all the financial docs you need before you seek a quote so you can get your application processed before lenders raise rates.
It was historical fall in mortgage rate. I refinanced my house from Reliance first capital at that time.It was good experience with them.
It is prohibitive to refinance when there are fees involved and the mortgage insurance brings the overall house payment right back up to what it was in the first place. We're not going to support yet another insurance company just for a lower rate and a higher mortgage because the refinance fees are rolled into the mortgage.
Nope, we just want a simple rate adjustment...change our interest from what it was to current rates, no muss no fuss. But, that wouldn't enable banks to get any fees and the mortgage insurance wouldn't get any fees, either...so...don't take out a mortgage larger than you can afford...we are very grateful we did not, and, we're still feeling the pinch...barely floating.
Get ready for the next "bubble" ---- my 1st house in 1978 required 20% down for a 30 year fixed mortgage at 9-3/4%. Since then, the dropping of interest rates allowed home prices to appreciate much faster than inflation & wages due to the monthly payment buying "more house". Going forward from here --- I don't see wages (monthly payment capacity) going up dramatically --- but --- interest rates will go up due to the government feeding inflation. Someone who buys now will have their mortgage go underwater on house value when rates go back up. Get ready for the next financial crises.
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