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U.S. Mortgage Rates Fall to Record as 30-Year Reaches 4.01%

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Sales of Existing Homes Unexpectedly Increased
Homes stand in a development in Diamond, Illinois. Photographer: Daniel Acker/Bloomberg

Sept. 29 (Bloomberg) -- Mortgage rates in the U.S. fell to the lowest level in Freddie Mac records after the Federal Reserve announced a plan to reduce borrowing costs even further.

The average rate for a 30-year fixed loan dropped to 4.01 percent in the week ended today from 4.09 percent, Freddie Mac said in a statement. That’s the lowest in the McLean, Virginia-based company’s records dating back to 1971. The average 15-year rate declined to 3.28 percent from 3.29 percent last week.

Yields on 10-year Treasuries, a guide for consumer loans, touched the lowest level in more than a half-century, after the central bank said on Sept. 21 that it would begin a program aimed at boosting the economy and lowering mortgage rates. The effort, called Operation Twist, would replace shorter-term securities in the Fed’s portfolio with longer-term debt. Policy makers also plan to support the home-loan market by reinvesting maturing housing debt into mortgage-backed securities.

“Mortgage rates have fallen some ways already, but they probably haven’t fully caught up with the decline in the 10-year Treasury,” Paul Dales, senior U.S. economist at Capital Economics Ltd. in Toronto, said in a telephone interview yesterday. “It’s possible the effects of Operation Twist will drag 10-year yields down further, thereby weighing on mortgage rates more.”

Gap in Rates

The gap, or spread, between the average 30-year fixed mortgage rate and the benchmark 10-year Treasury yield widened to 2.26 percentage points last week, the biggest gap since 2009, according to data compiled by Bloomberg. If the spread matched the gap of 1.17 percentage points in February, the 2011 low, home-loan rates now would be close to 3 percent.

Homeowners are taking advantage of low borrowing costs to reduce their monthly payments. A Mortgage Bankers Association index of refinancing rose 11 percent in the week ended Sept. 23. The Washington-based trade group’s purchase gauge increased 2.6 percent.

Declining interest rates have done little to stimulate the U.S. housing market as the unemployment rate sticks above 9 percent and lenders tighten credit. The number of contracts to purchase previously owned homes fell 1.2 percent in August, following a 1.3 percent decline the previous month, according to a National Association of Realtors index released today.

‘Marginal Support’

Record-low borrowing costs “are only a marginal support right now,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a telephone interview yesterday. “Mortgage credit is still tight and secondly, on the demand side, households are concerned about the job market and falling house prices.”

The S&P Case-Shiller index of home values in 20 U.S. cities decreased 4.1 percent in July from a year earlier, the group reported Sept. 27.

Purchases of new houses fell in August to a six-month low, Commerce Department data showed this week. Sales of previously owned homes that month rose to a five-month high, boosted by demand for lower-priced distressed properties, the National Association of Realtors said Sept. 21. The median price dropped to $168,300 from $177,300 in August 2010.

To contact the reporter on this story: Prashant Gopal in New York at

To contact the editor responsible for this story: Kara Wetzel at

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