The average U.S. mortgage rate on 30-year fixed rate mortgages was 5.06 percent for the week ending April 29th. This is a slight decrease from the previous week, but is still well above the record low of 4.71 percent in early December. Thirty-year fixed rate mortgages have averaged around 5 percent in the first quarter of 2010.
Lower interest rates could represent thousands of dollars worth of savings for those looking to purchase a home. They are also good news for the economy in general, as lower borrowing costs could put more cash in the hands of consumers. Consumer spending is one of the most important drivers of the U.S. economy, and represents around 70 percent of the GDP.
The Federal Reserve renewed its pledge to keep interest rates low for an “extended period” in their most recent statement. While mortgage rates are not going to spike due to the Fed, other market forces have caused significant volatility in mortgage rates recently.
Mortgage rates are closely tied to the yield spread between treasury bonds and mortgage-backed securities, which fluctuate depending upon the demand for treasuries and other factors.
Another important dynamic depressing interest rates is the debt crisis occurring in Europe, which has seen the credit ratings of Greece and Spain slashed by Moody’s, on fears that they will default. The debt contagion will likely spread to Ireland and Portugal, and is causing a lot of fear among investors.
As risk-averse investors are scared out of European bond issues, there is a flight to safety into U.S. treasury bonds. Increased demand for treasuries causes interest rates to dip, and mortgage rates to fall in the short term as a result.
Most analysts believe that mortgage rates will trend up before the end of 2010, so now is an excellent time for home buyers who are on the fence to lock in a low rate.
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