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Mortgage rates flirt with historical lows

Greek debt crisis is keeping U.S. rates lower than expected, but rates won't stay below 5% forever.

By Teresa Mears May 20, 2010 1:12PM

Remember all those predictions that mortgage rates would rise above 6% in 2010?

 

So far this year, the trend has been just the opposite. Rates on a 30-year fixed-rate mortgage fell again this week, to an average 4.84%, the lowest rate this year.

We're back to flirting with historic lows, perhaps harking as far back as the 1950s.

 

Thank the Greeks.

 

This week's rate is down from 4.93% last week and is the lowest since the week ending Dec. 10, when the rate averaged 4.81%. Last year at this time, the rate was 4.82%, according to Freddie Mac's Primary Mortgage Markey Survey.

 

Freddie Mac's monthly statistics, which go back to 1971, don't show rates below 5% at any time except this year and last.

 

Holden Lewis of Bankrate found National Bureau of Economic Research statistics that show that prior to last year the last time rates were below 5% was 1956. The two sets of statistics don't include the years from 1966 to 1970. Rates were 5.62% at the end of 1965 and 7.31% when Freddie Mac began keeping records in April 1971.

Bankrate, which uses slightly different data, reported that the current rates are the lowest since it started collecting data in September 1985, when rates averaged 12.31%.

 

Statistics on mortgage rates vary because the agencies measure averages at different times or using different information. The exact mortgage rate a specific lender is offering may change every day, sometimes more than once a day.

 

Rates are declining because of the Greek debt crisis and Europe's response to it. That has caused capital to flee to the United States, where money is currently cheaper, Lewis reported.

Unfortunately, few Americans are in a position to take advantage of the low rates.

 

Refinancing applications are at their highest level in nine weeks, the Mortgage Bankers Association reported, but most people who can refinance to get lower rates have already done so.

 

The 23.3% of homeowners who owe more than their homes are worth aren't in a position to refinance, unless they are eligible for the federal Making Home Affordable program, which will refinance homes up to 125% of their value. In the hardest-hit areas, such as Florida, California, Arizona and Nevada, many are too far underwater to use that program.

 

The $8,000 homebuyer tax credit that expired April 30 boosted home sales, but the rush seems to be over. The Mortgage Bankers Association says the number of applications for purchase loans is at its lowest level in 13 years.

 

"It's disturbing," John Canally, an economist at LPL Financial in Boston, told Reuters.

 

"It seems that every other data point for housing is pretty good -- high affordability, low interest rates, relatively low inventory, home prices are up -- so I'm leaning toward the hangover from the tax credit but I'm going to need to see a couple of more weeks of data."

 

Will interest rates keep falling? Perhaps in the short term. But last year's predictions about higher rates will come to pass. It's just that no one knows when. Keep an eye on the economies in Europe and China.

 

"People rush to us for 'safety,' although we're Greece -- we just haven't gotten there yet," Anthony Sanders, distinguished professor of real estate finance at George Mason University in Fairfax, Va., told Bankrate's Lewis. "Right now we're the port in the storm."

 

He predicts U.S. interest rates will rise when the European or Chinese economies recover enough that investors will take their money back overseas.

 

Is this a good time to buy a house?

 

Interest rates alone are not a reason to buy. But if you're at a time of your life when buying makes sense, and you've got the money, low interest rates and lower housing prices could make it worth considering.

 

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