Smart SpendingSmart Spending

Mortgage rates drop again

Could the 30-year rate fall below 4%? Experts consider the possibility.

By Karen Datko Sep 2, 2010 12:19PM

This post comes from Marilyn Lewis of MSN Money.


Mortgage interest rates dropped yet again this week.

  • Freddie Mac, the quasi-government mortgage company, reported that 30-year fixed-rate mortgages are averaging 4.32% (with an average cost of 0.7 point), down from 4.36% last week -- and from 5.08% this time last year.
  • Fifteen-year fixed-rate mortgages dropped to 3.83% (with 0.6 point), down from 3.86% last week and 4.54% last year.

Freddie Mac started tracking the 30-year fixed-rate in 1971 and the 15-year rate in 1991, and the prices this summer have broken every record.

Here's the new question: Could the 30-year fixed mortgage conceivably drop below 4%? It would be something to tell your grandchildren about. The possibility has previously seemed out of the question. But now economists and mortgage experts are discussing it. Post continues after video.

30-year rates below 4%?

The Pittsburgh Tribune-Review asked economists whether they thought we'll see 30-year fixed rates fall into the 3% region:

"I'm not forecasting rates below 4% on 30-year fixed-rate mortgages, but the potential is there," said Robert Dye, senior economist at PNC Financial Services Group in Pittsburgh.

Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association, told the paper that he, too, thought that lower rates were possible.


Fratantoni said that, with falling rates linked to the poor economy, it's possible the trend could persist for a while.

"It is unclear how low rates may go in this pretty rotten environment," Fratantoni said.


Lawrence Yun, chief economist at the National Association of Realtors, is skeptical that rates will drop a whole lot lower. From the article:

"I was surprised rates have dropped this low, but I expect by next year at this time, they will go higher," said Yun. "Yes, there is a possibility the rates could drop to 4% or lower, but I don't believe that will happen because our economy is recovering and, depending on job creation, that will create upward pressure on rates."

Each week surveys experts in the mortgage and banking fields to ask whether they think rates are headed up or down. This week, 52% of the experts say rates will stay the same, 24% think they'll go up and 24% predict they'll drop further.


Jeffrey Steed, president of Schmidt Mortgage Co. and immediate past president of the Ohio Mortgage Bankers Association, told WEWS NewsNet5 in Bay Village, Ohio, that although he doesn't expect rates to fall much further, they'll probably stay this low through the end of the year. "An increase in rates would slow down the economy, and there are no signs that's needed," Steed said.


What's not changed is that, despite historically low rates, few people are buying homes or refinancing mortgages. The reason for that, Steed says, is hoops and hurdles: The rules have grown stricter and the fees higher. The article said: 

It's not appraisals that are making refinancing difficult. It's the paperwork. New regulations have doubled loan files, and the price of refinancing is up. Expect to pay between $4,000 to $6,000 unless you have an FHA or VA loan.

Predictions about interest rates are entertaining, but it's worth remembering that they're not worth the paper they're printed on -- make that megapixels these days. Case in point: In early April of this year, Nelson Schwartz, European economics correspondent for The New York Times, predicted that "interest rates have nowhere to go but up." So much for prognosticating experts.


The downside of low rates

Low rates are a cause for celebration among mortgage buyers, but for other reasons -- big picture and small -- they're not a uniformly good thing.


A poster named "Balance Junkie" on the Seeking Alpha blog quotes Nassim Taleb, author of "The Black Swan," who:

… has been saying for quite some time that the Fed steered us into the ditch and that it's shameful that the same group that got us here is still in the driver's seat. Perpetual overspending and record low interest rates have not only failed to solve our problems, but are the major causes of them.

At the individual level, low rates cause financial havoc for the growing numbers of people entering retirement. Balance Junkie says:

Continued low yields hurt savers, retirees, and pension plans who do not want to invest in riskier assets. In order to maintain an annual investment income of $40 000, you would need to have $2 million invested at a 2% rate of return. If yields were at 5%, you would only need to have $800,000 saved to achieve the same income level.

One thing's for sure: With the itsy-bitsy, incremental changes these days -- remember, the 30-year rate dropped only 0.04 of a percentage point this week, to 4.32% -- it's going to be a very long time before rates fall beneath 4%, if they ever do.


More from MSN Money:

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.