Mortgage Rates Reach Record Low Once More

By Stevie Duffin Updated on 12/14/2012

By Daniel Duffield

Last week, mortgage rates decreased to record low levels as a result of the Federal’s Reserve’s choice to purchase billions in home mortgages in the near future. With this decision, lending costs have been reduced for both homebuyers and owners.

Government sponsored enterprise Freddie Mac’s weekly survey of interest rates showed that the standard 30-year fixed-rate mortgage decreased from 3.55% from the previous week to a low 3.49%, matching the previously held record low set in July. In addition, the 15-year fixed-rate mortgage broke records, reaching a new low of 2.77% from last week’s 2.85%.

The Federal Reserve announced the past Thursday its intentions to purchase $40 billion in mortgage-insured securities each month for at least the near future. The purpose of these purchases, referred to as QE3, is to stimulate economic activity by driving more money into the economy and applying downward pressure on rates. Borrowers securing new home mortgage loans, for purchase or refinance, will be the first to receive these benefits of the Fed’s policy as beneficiaries.

Vice President of HSH.com Keith Gumbinger, a provider of mortgage information and investigation, stated that he expected mortgage rates to continue to decrease 0.2 percentage points lower during the coming weeks as the market catches up to the Fed’s mortgage bond buys.

According to Gumbinger, the Fed’s influence has not yet reached the market, and a slowing of mortgage applications is to be expected while working through the capacity of the pipeline.

Many predict that these low rates will benefit the economy even outside of the housing market, as homeowners will be taking greater advantage of refinances. Borrowers who purchased a home last year at $200,000 with a 4.09% 30-year rate can save $1,000 annually by refinancing to the current rates. For borrowers who secured more funding or higher rates, the savings could be even greater.

However, the lower rates have also made home purchase more affordable, and many attribute the recent reversal in home prices to this trend. According to Frank Nothaft, chief economist at Freddie Mac, the lower rates should provide some relief for the ongoing effort of the housing market recovery.

On Wednesday, the National Association of Realtors (NAR) issued a report that sales of previously owned homes have increased 7.8% from last year, while the Census Bureau also issued a report that showed an substantial increase in housing starts an building permits during the month of August. Other accounts have illustrated a distinct trend of home prices turning after several years of consistent decline.

While the housing market has seen some noticeable improvement, prices and sales have still been damaged by a high volume of foreclosed homes and the persistent weakness of the job market.

Gumbinger stated that although the lower rates show some promise for the housing market, they are only a portion of the solution to the problem.

According to Gumbinger, mortgage rates have not been the primary obstacle to home sales for some time. He believes that the problem lies with difficulty of qualifying for the numerous bad credit borrowers who have undergone foreclosure; these borrowers cannot access the currently low rates, and buyers who can qualify remain reluctant after the impact of the housing market downturn in recent years.

"There's a sizable part of the market that can't be served, or won't be served, by low rates," he said.

Last week, mortgage rates decreased to record low levels as a result of the Federal’s Reserve’s choice to purchase billions in home mortgages in the near future. With this decision, lending costs have been reduced for both homebuyers and owners.

Government sponsored enterprise Freddie Mac’s weekly survey of interest rates showed that the standard 30-year fixed-rate mortgage decreased from 3.55% from the previous week to a low 3.49%, matching the previously held record low set in July. In addition, the 15-year fixed-rate mortgage broke records, reaching a new low of 2.77% from last week’s 2.85%.

The Federal Reserve announced the past Thursday its intentions to purchase $40 billion in mortgage-insured securities each month for at least the near future. The purpose of these purchases, referred to as QE3, is to stimulate economic activity by driving more money into the economy and applying downward pressure on rates. Borrowers securing new home mortgage loans, for purchase or refinance, will be the first to receive these benefits of the Fed’s policy as beneficiaries.

Vice President of HSH.com Keith Gumbinger, a provider of mortgage information and investigation, stated that he expected mortgage rates to continue to decrease 0.2 percentage points lower during the coming weeks as the market catches up to the Fed’s mortgage bond buys.

According to Gumbinger, the Fed’s influence has not yet reached the market, and a slowing of mortgage applications is to be expected while working through the capacity of the pipeline.

Many predict that these low rates will benefit the economy even outside of the housing market, as homeowners will be taking greater advantage of refinances. Borrowers who purchased a home last year at $200,000 with a 4.09% 30-year rate can save $1,000 annually by refinancing to the current rates. For borrowers who secured more funding or higher rates, the savings could be even greater.

However, the lower rates have also made home purchase more affordable, and many attribute the recent reversal in home prices to this trend. According to Frank Nothaft, chief economist at Freddie Mac, the lower rates should provide some relief for the ongoing effort of the housing market recovery.

On Wednesday, the National Association of Realtors (NAR) issued a report that sales of previously owned homes have increased 7.8% from last year, while the Census Bureau also issued a report that showed an substantial increase in housing starts an building permits during the month of August. Other accounts have illustrated a distinct trend of home prices turning after several years of consistent decline.

While the housing market has seen some noticeable improvement, prices and sales have still been damaged by a high volume of foreclosed homes and the persistent weakness of the job market.

Gumbinger stated that although the lower rates show some promise for the housing market, they are only a portion of the solution to the problem.

According to Gumbinger, mortgage rates have not been the primary obstacle to home sales for some time. He believes that the problem lies with difficulty of qualifying for the numerous bad credit borrowers who have undergone foreclosure; these borrowers cannot access the currently low rates, and buyers who can qualify remain reluctant after the impact of the housing market downturn in recent years.

"There's a sizable part of the market that can't be served, or won't be served, by low rates," he said.