Mortgage rates: how low can they go?
This is becoming old hat at this point, but mortgage rates have hit yet another all-time low. This is due in large part to investors fleeing the stock market for the relative safety of the bond market, driving down bond yields and taking mortgage rates with them.
Freddie Mac released their weekly mortgage rates survey, and the average mortgage rate for a 30 year fixed rate mortgage is 4.36 percent, down from 4.42 percent. The average rate on a 15 year fixed rate mortgage is down to 3.86 percent, down from 3.90 percent last week. For nine out of the last ten weeks both rates have declined. These rates are the lowest since Freddie Mac started keeping track in 1971, and likely the lowest since the 1950s.
Low mortgage rates have not really done anything to increase the volume of home purchases, as new and existing home sales have collapsed since the expiration of the first time home buyer tax credit at the end of April. There is over 12 months of housing supply right now (a normal market has 6 months of supply), and REO properties are beginning to pile up as increasing numbers of foreclosures are finalized. As a result of the high supply and low demand, expect to see prices decline over the next few months. We should start to see the declines reflected in the Case-Schiller House Price Index in a couple of months (Case Schiller reflects a three month average with a two month lag, so it takes a while for changes to show up).
For those that qualify for financing, now is an ideal time to refinance your existing mortgage, especially if you are paying more than one point over the current rates. Refinancing applications are at their highest levels since 2009, but many people have been unable to take advantage of the current market conditions due to declining home equity.
The Federal Reserve has pledged to maintain their zero interest rate policy for an extended period, but market fluctuations should be expected to cause spikes and dips in mortgage rates as conditions change.
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