Mortgage rates for fixed 30-year loans in the U.S. dropped to a record low amid signs that the housing market is beginning to emerge from the worst slump since the 1930s.
The rate fell to 4.71 percent for the week ended today, the lowest since mortgage buyer Freddie Mac began compiling the data in 1971. The average 15-year rate was 4.27 percent, the McLean, Virginia-based company said today in a statement.
"I don't think they can go much lower," said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio. "I think frankly they're at one of the lowest points they're going to achieve for a long time."
Low mortgage costs and a tax credit for first-time homebuyers are helping increase demand for property as the number of contracts to buy previously owned homes rose in October and mortgage applications gained last week. The highest U.S. unemployment rate in 26 years is depriving the housing market of buyers and adding to the number of foreclosed properties for sale, helping push home prices lower.
"Home prices, we think, will fall until probably the second half of next year," Celia Chen, senior director at Moody's Economy.com in West Chester, Pennsylvania, said by telephone. "The housing market is still going to be very weak next year."
Foreclosures will probably peak in the first quarter of 2010, Chen said. Home prices are being hurt by excess inventory of homes on the market, Chen said. The number of contracts to buy an existing home in the U.S. gained in October as consumers rushed to take advantage of the tax credit that had been scheduled to expire. The index of signed purchase agreements, or pending home sales, climbed 3.7 percent to 114.1 after rising 6 percent in September, the National Association of Realtors said on Dec. 1.
Purchase IndexThe Mortgage Bankers Association's index of applications to purchase a home or refinance a mortgage rose 2.1 percent in the week ended Nov. 27. The purchase index gained 4.1 percent and the refinancing gauge increased 1.7 percent.
A Federal Reserve program to buy as much as $1.25 trillion in securities backed by home loans has helped reduce mortgage rates this year. The program is scheduled to end the first quarter of next year.
The bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae, which buy mortgages from lenders and package them into bonds, brought yields on the securities down this year and allowed lenders to reduce mortgage rates while still selling the securities at a profit.
President Barack Obama signed legislation last month to extend and expand a home-buying tax credit, which may further boost property sales.
The tax credit for first-time buyers was set to expire Nov. 30 and may have sparked an increase in existing home sales in October. Purchases of existing homes rose 10.1 percent to the highest level since February 2007.