U.S. mortgage rates declined,
sending long-term borrowing costs to the second-lowest level on
record after an unexpected increase in home sales.

The average rate for a 30-year fixed loan dropped to 3.98
percent in the week ended today from 4 percent, Freddie Mac (FMCC) said
in a statement. It reached 3.94 percent last month, the lowest
in Freddie Mac records dating to 1971. The average 15-year rate
fell to 3.30 percent this week from 3.31 percent, according to
the McLean, Virginia-based mortgage-finance company.

Falling borrowing costs may be bolstering home demand.
Purchases of previously owned houses rose last month to a 4.97
million annual rate from September’s 4.9 million pace, the
National Association of Realtors said Nov. 21. The median
estimate of 75 economists in a Bloomberg survey was for a
decline to 4.8 million.

“Low interest rates have some effect,” Paul Dales, senior
U.S. economist at Capital Economics Ltd. in Toronto, said in a
telephone interview. “Housing is incredibly affordable at the
moment due to the low interest rates and good valuations to be
had as well.”

The median price of an existing home was $162,500 in
October, down 4.7 percent from a year earlier and 29 percent
below the peak of $230,300 in July 2006, the Realtors data show.

A Mortgage Bankers Association index of applications for
home purchases rose 8.2 percent in the period ended Nov. 18 from
the prior week to the highest level since May, the Washington-
based group said today. A gauge of refinancing dropped 4
percent.

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