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Mortgage Rates in U.S. Fall to Record as 30-Year Reaches 4.0

Homes stand in a development in Diamond, Illinois, on March 19, 2011.

Homes stand in a development in Diamond, Illinois, on March 19, 2011. Photographer: Daniel Acker/Bloomberg

 

Sept. 29 (Bloomberg) — Jonathan Miller, chief executive officer of Miller Samuel Inc., talks about record-low U.S. mortgage rates and the need for incentives to boost the housing market.
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 today. The number of contracts to purchase previously owned U.S. homes fell 1.2 percent in August, the National Association of Realtors said. Miller speaks with Lisa Murphy on Bloomberg Television’s “Fast Forward.” (Source: 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. (JPM) 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
pgopal2@bloomberg.net

To contact the editor responsible for this story:
Kara Wetzel at
kwetzel@bloomberg.net

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