Detroit News – If you’ve been waiting to see how low mortgage rates can go, you can stop. This is it.
The latest surveys show the national average rate on 30-year mortgages stayed below 5 percent for the second or third week in a row, depending on which surveys you choose. While these ultra-low rates aren’t likely to last for long, experts say rates will hover around 5.5 percent for at least a few months more.
“Mortgage rates continue to flirt with record lows,” says Greg McBride, senior financial analyst at consumer finance site Bankrate.com. “The outlook in the near term is that rates are going to stay very, very low.”
Rates on a 30-year fixed-rate home loan were at 4.87 percent Thursday, down from 4.94 percent last week, according to the weekly survey by mortgage buyer Freddie Mac. The Mortgage Bankers Association put the rate at 4.89 percent, down from 4.94 percent the week before and 4.97 percent two weeks ago.
The dip in loan rates has home buyers and owners applying for new mortgages, the Mortgage Bankers say. Loan applications were up 16.4 percent for the week ended Wednesday, while refinancing requests increased 18.2 percent. That’s the highest level since mid-May, after mortgage rates dropped below 5 percent for a 10-week period.
Just how low is this? Consider that last year, at what was most likely the height of the Great Recession, 30-year loans averaged just above 6 percent. Even during the peak of mortgage madness a few years ago, rates on 30-year loans averaged more than 5.8 percent, according to Freddie Mac.
Fed buying plan pushed rates down
The cost of borrowing hasn’t come down because of the $8,000 first-time homebuyer’s tax credit, falling home prices or any rise in demand by borrowers. Instead, rates have been pushed down thanks to a bond-buying spree from the Federal Reserve.
After cutting the key federal discount rate effectively down to zero in December 2008, mortgage rates barely budged — partly because they already were below the bargain rate of 5.25 percent. To buoy the struggling housing sector, the Fed kicked mortgage rates even lower with a program to buy truckloads of mortgage-backed securities.
The increased flow of capital to mortgage lenders has pushed rates down by about another half-percent, McBride explains. Coupled with a drop in 10-year Treasury bonds, which also serve as a peg for mortgage rates, home loans have stayed in the bargain basement.
The result, coupled with the first-time credit and low home prices, has been a pick-up in home sales and — for most of the rest of the nation — a lift in home prices, too, as low loan rates make homes more affordable without sellers having to lower the price.
Huge spike in interest rates not expected
While rates of less than 5 percent can’t last for long, homebuyers don’t need to panic that rates will bust too far out of this historically low range right away. Even a fluctuation of a half-point in rates wouldn’t put a home purchase out of reach — the difference between a loan at 5 percent versus 5.5 percent on a $200,000 loan comes out to just $62 a month.
“Nobody can predict where interest rates are going to go,” says Harry Glanz, co-founder of Capital Mortgage Funding in Southfield, “but it would be insane for rates to go up if they want to sustain any kind of rally in the housing market. Everybody benefits from it.”
But homebuyers may only have brief window to grab the sub-5-percent rates we’re seeing now. Michael Cauley, a broker with Mortgage Resource Plus Inc. in Birmingham, notes that even though the Fed’s $1 trillion mortgage securities buying spree isn’t ending until April, it may slow down.
Cauley points out that the Fed program is down to its last $301 billion, which has to last another 25 weeks. That averages out to $12 billion a week to buy mortgage-backed securities, far off the pace of the $20 billion purchased just last week.
“This is obviously a significantly lower amount of buying, which will lead to higher mortgage rates,” Cauley says. “There’s no disputing the math. Consumers should not anticipate interest rates going lower than the current market.”
That means people who have their tax returns, wage stubs and other paperwork ready to go for a refinance or home purchase should get moving.
“I remind everyone when rates are below 5 percent that it’s the lowest rate in 50 years,” says Dale Vermillion, author of “Navigating the Mortgage Maze.” “Any time you get the chance, you should take advantage of it.”
Bob Walters, chief economist for mortgage broker Quicken Loans, notes that while rates might not really pick up until at least the first quarter of 2010, the current lows won’t last forever.
“When you can lock in a 30-year loan at 5 percent, just do it,” Walters says. “Years from now, people who locked in a mortgage at 5 percent will be very happy.”
Paul Wickstrom