Mortgage Rate Falls Below Four Percent

For the first time ever, the average 30-year fixed rate mortgage rate has fallen below four percent. The new all-time low is 3.94 percent, with an average 0.8 point, according to Freddie Mac.

At this time a year ago, the average 30-year mortgage rate was 4.27 percent.

Other rates are even lower. The 15-year fixed rate mortgage this week averaged 3.26 percent with an average 0.8 point, down from last week when it averaged 3.28 percent. A year ago at this time, the 15-year FRM averaged 3.72 percent. The five-year Treasury-indexed hybrid adjustable rate mortgage averaged 2.96 percent this week, with an average 0.6 point, down from last week when it also averaged 3.02 percent. A year ago, the 5-year ARM averaged 3.47 percent.

Analysts said the falling interest rates reflect worries about the health of the global economy.

“Average 30-year conventional fixed mortgage rates fell below four percent for the first time in history this week following a sharp drop in 10-year Treasuries early in the week as concerns over a global recession grew.,” said Frank Nothaft, vice president and chief economist, Freddie Mac. “Average 15-year fixed rates fell to a record low in the PMMS as well. Interest rates for 1-year ARMs, however, rose, as the Fed began replacing $400 billion of its short-term Treasury securities, which serve as benchmarks for many ARMs. Also, in his testimony to Congress's Joint Economic Committee on Tuesday, Federal Reserve Chairman Bernanke said the recovery is close to 'faltering' and stressed the need for lawmakers to act.”

Where are the buyers?

While record low interest rates ordinarily would set off a buying binge in the real estate market, no one expects that to happen. While rates are rock bottom, buyers first have to be able to qualify for a mortgage. Often that means having a stellar credit rating and a 20 percent or more down payment.

“We continue to experience a pattern in which financially qualified home buyers, willing to stay well within their means, are being denied credit – a factor in elevated levels of contract failures,” said Lawrence Yun, chief economist for the National Association of Realtors (NAR). “Based on the improving fundamentals of population growth, some job additions, rent increases and higher stock market wealth, we should be seeing existing-home sales closer to 5.5 million, but are expecting just over 4.9 million this year. The unnecessarily restrictive mortgage underwriting standards are attenuating the housing recovery and are a risk factor for the overall economy.”

Yun maintains that there is actually pent-up demand in the housing market, but those who want and need homes can't obtain financing.