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Mortgage rates at new low -- again

Consumers stay on the sidelines, expecting rates to remain low and housing prices to fall further.

By Teresa Mears Aug 12, 2010 1:00PM

It's Thursday, and that means it's time for another story reporting that mortgage rates have dropped to record lows, for the seventh time this year -- so far. But, despite the lowest rates most of us have seen in our lifetimes, people are not rushing to refinance or buy homes.

The average rate for a 30-year fixed-rate mortgage fell to 4.44% this week, the lowest since Freddie Mac began keeping records in 1971. That's down from 4.49% last week and from 5.19% a year ago. The rate is the lowest recorded since 1953, according to the National Bureau of Economic Research, when loan terms were shorter.


Rates for 15-year mortgages dropped to 3.92%, the lowest rate on record and down from 3.95% last week.


Are these the lowest rates we'll see?


Probably not. Post continues after video.

Mortgage rates tend to track Treasury bonds. If the rates on those bonds fall, so do mortgage rates. Economic uncertainty has people shifting their money into Treasury bonds, lowering the yields, Alan Zibel of The Associated Press reports. The Federal Reserve pledged this week to buy Treasury bonds in an effort to boost economic recovery, which could lower rates even further.

The Fed's move alone will not push mortgage rates down to 4%, Bob Walters, chief economist at Quicken Loans, told AP. But if the economy gets worse? More investors will move out of stocks and into bonds, and rates will continue to fall.


Despite the historically low rates, Americans still are not refinancing in large numbers. Many who would like to refinance can't, either because they have no equity in their homes or because they can't meet more stringent underwriting guidelines.


People also are not buying homes, as uncertainty about the job market and a belief that home prices will continue to fall trump low interest rates and low housing prices.


This is how Patrick Lashinsky, president of ZipRealty in Emeryville, Calif., explained the situation to Reuters:

Consumers don't have a sense of urgency right now. They think that interest rates seem to be continuing to go down, they don't expect home prices to go up, so instead of moving into home buying they're saving money for a down payment; they're trying to improve their credit.

Despite federal government efforts to help distressed homeowners, including an additional $3 billion announced this week for homeowners in the states with the highest unemployment rates, housing prices are likely to continue to fall in many areas. As AP reported late last month:

Earlier this year, analysts said they thought home prices had finally reached their low point and were ready to start rising slowly in most areas of the country. Now, they think the actual bottom could be nearly a year away.

Which may explain why prospective homebuyers are staying on the sidelines. Michael Gao, a 31-year-old software engineer in Mountain View, Calif., expects the economy and the housing market to get worse before they get better.


"It's really not looking good," Gao told AP. "If the housing market will dip, then why would you buy now?"


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