30-Year Fixed Down Nearly 2% from July

Inman News

The 30-year fixed-rate mortgage averaged 4.85 percent with an average of 0.7 point for the week ending March 26, down from 4.98 percent a week ago and 5.85 percent a year ago. The rate has never been lower since Freddie Mac began its survey in 1971.

Compared to a 30-year fixed-rate mortgage taken out at last year’s high of 6.63 percent on July 24, the current rate represents savings of about $225 a month on a $200,000 loan, Freddie Mac chief economist Frank Nothaft said.

The survey tracks prime conventional conforming mortgages with a loan-to-value ratio of 80 percent. Borrowers making less than a 20 percent down payment, or seeking loans too large or risky for purchase or guarantee by Fannie Mae and Freddie Mac, can expect to pay higher rates.

Potential homebuyers are taking notice of historically low mortgage rates, Nothaft said, with sales of both new and existing homes up about 5 percent from January to February.

According to the National Association of Realtors, sales of existing homes rose 5.1 percent from January to February. But the seasonally adjusted annual rate of 4.72 million units was off 4.6 percent from a year ago.

The Commerce Department reported this week that new-home sales rose 4.7 percent from the previous month, but were down 41 percent from a year ago.

The Mortgage Bankers Association this week said it’s expecting fewer purchase mortgages will be originated this year, but the group anticipates a huge wave of refinancings as borrowers seek to take advantage of rates not seen since the 1950s.

While lenders refinanced only $765 billion in mortgages last year, the MBA now expects refinancings to hit $1.96 trillion in 2009 — $824 billion more than the group was forecasting in February. However, the MBA also lowered its projection for existing-home sales to 4.79 million, which would represent a 2.5 percent drop from 2008 levels.

 

The picture for mortgage rates changed dramatically on March 18, when the Federal Reserve announced it would purchase up to $300 billion in long-term Treasury securities over the next six months, and boosted a previous commitment to buy $500 billion in mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae to as much as $1.25 trillion.

Increased demand for Treasurys and mortgage-backed securities pushes their prices up. Because yields move in the opposite direction of prices, rates on 10-year Treasurys fell this week, and mortgage rates followed, Nothaft said in a statement.

Freddie Mac said 15-year fixed-rate mortgages averaged 4.58 percent with an average 0.7 point this week, down from 4.61 percent last week and 5.34 percent a year ago. That’s a record since Freddie Mac began tracking 15-year fixed-rate mortgages in 1991.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 4.96 percent with an average 0.7 point, down from 4.98 percent last week and 5.67 percent a year ago. The 5-year ARM has never been lower since the survey began tracking those loans in 2005.

One-year Treasury-indexed ARMs averaged 4.85 percent with an average 0.6 point, down from 4.91 percent last week and 5.24 percent a year ago.

With rates at historic lows, the question for many borrowers becomes how long they will last. The Fed’s actions and mounting federal deficits could weaken the dollar and spur inflation, which could send interest rates back up. In addition, a first-time homebuyer tax credit of up to $8,000 expires at the end of November.

MBA chief economist Jay Brinkmann said this week that low rates should be available for “at least the next several months.” But if fears of inflation cause investors to shun Treasurys, the Fed’s impact on long-term interest rates could be short-lived, he said.