Mortgage Rates Pushed to New Lows

Demand for purchase loans rebounding after Hurricane Sandy

By Inman News, Thursday, November 15, 2012

With U.S. lawmakers heading toward the edge of the “fiscal cliff,” government-backed mortgage bonds that fund the vast majority of home loans are looking like a safe haven for investors, helping push mortgage rates to new lows.

Rates on 30-year fixed-rate mortgages averaged 3.34 percent with an average 0.7 point for the week ending Nov. 15, down from 3.4 percent last week and 4 percent a year ago, Freddie Mac said in releasing the results of its weekly Primary Mortgage Market Survey.

That’s a new low in Freddie Mac records dating to 1971. In the four decades that Freddie Mac has conducted the mortgage market survey, rates on 30-year fixed-rate loans had never been below 4 percent until last year.

The survey showed rates on 15-year fixed-rate mortgages averaging 2.65 percent with an average 0.7 point, down from 2.69 percent last week and 3.31 percent a year ago. That’s also a new record in Freddie Mac records dating to 1991.

For five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans, rates averaged 2.74 percent with an average 0.6 point, up from 2.73 percent last week but down from 2.97 percent a year ago. Rates on five-year ARM loans hit a low in records dating to 2005 of 2.69 percent during the week ending July 19.

Rates on one-year Treasury-indexed ARM loans averaged 2.55 percent with an average 0.3 point, down from 2.59 percent last week and 2.98 percent a year ago. That’s a new low in records dating to 1984.

Applications for mortgage loan applications bounced back last week after being dented by Hurricane Sandy, according to a separate survey by the Mortgage Bankers Association.

That survey showed applications for purchase mortgages were up a seasonally adjusted 11 percent during the week ending Nov. 9 compared to the week before, and up 22 percent from a year ago.

Bond prices and yields move in opposite directions, and increased demand for mortgage-backed securities (MBS) guaranteed by Freddie Mac, Fannie Mae and Ginnie Mae has pushed mortgage rates down.

The Federal Reserve has been one of the biggest purchasers of MBS, in a deliberate move to stimulate the economy by lowering the cost of borrowing.  A first round of “quantitative easing” by the Fed that wrapped up in 2010 helped push mortgage rates below 5 percent. That program involved the purchase of $1.25 trillion in Fannie and Freddie MBS and debt.

A third round of quantitative easing (“QE3”) announced by the Fed on Sept. 13 has boosted its MBS purchases by $40 billion a month. Because of the sluggish pace of the recovery, Fannie Mae economists think that open-ended program could last through all of 2013 and perhaps into 2014, and grow the Fed’s balance sheet by $1 trillion.