September 8, 2011

How Low Can They Go?

According to Freddie Mac's latest Primary Mortgage Market Survey, mortgage rates have hit all-time record lows "amid market and employment concerns and economic uncertainty."

The average rate for a 30-year fixed loan has dropped to 4.12 percent versus 4.32 percent last month and 4.35 percent a year ago, while the average 15-year rate has fallen to 3.33 percent versus 3.5 percent last month and 3.83 percent year-over-year.

Mortgage Rates Attain New All-Time Record Lows Again [Freddie Mac]
Silver Lining: The Cost Of Mortgage Money Drops [SocketSite]

First Published: September 8, 2011 9:30 AM

Comments from "Plugged In" Readers

Mortgage rates love bad economic news. Being the economy is slowing back down the rates will be below 4% in a couple months.

I never thought we would get much below 5%. Go figure.

Posted by: inclinejj at September 9, 2011 6:14 AM

No mention of the lovable optionARM. Those are under three right now.

Posted by: sparky-b at September 9, 2011 8:14 AM

Amazingly, I've started to consider a 15 yr mortgage at these rates. Never, ever thought that would be on the table.

Consider a hypothetical 2007 purchase of a condo or house at $750,000 with 20% down at 5.00%. P/I is $3,220. If you sat it out and preserved your capital, you may now be able to buy the same place for $600,000 with 25% down @ 3.33% and pay it off in 15 years. P/I is actually lower by $41 at $3,179.

Posted by: rabbits at September 9, 2011 9:12 AM

Funny that all the predators who jump on any kind of negative news are completely silent on this one.

Posted by: kg at September 9, 2011 10:38 AM

This fact + stupidly high Fannie/Freddie limits are creating a lot of stimulus in housing, and we're still not seeing the sales levels we saw during the boom. $500K at 4.12% is the same as $757K at 8%.

Posted by: sfrenegade at September 9, 2011 11:28 AM

"This fact + stupidly high Fannie/Freddie limits are creating a lot of stimulus in housing, and we're still not seeing the sales levels we saw during the boom."

Forget the boom, we're not even seeing the sales levels of LAST YEAR in SF:

Imagine what happens when rates go back up.

Posted by: Michael at September 9, 2011 11:48 AM

So you can borrow here at 3.33% and buy 10-yr Greek bonds at 21% (or Greek 2-yr bonds at 57%). Let's get rich! I wonder if these two things are related in any way?

Posted by: A.T. at September 9, 2011 11:50 AM

Note that you could consider two main components of mortgage rates, default risk and interest rate risk.

Normally bad economic news might increase default risk and contribute a positive contribution to mortgage rates. But basically the government is absorbing the default risk via fannie/freddie right now.

Bad news in many cases is deflationary which reduces interest rate risk and would tend to lower rates. i.e. If you expected 5% inflation it wouldn't make sense to loan money at 5%, but if you expected 3% deflation you might even loan money at 0%

Another way to look at it is that deflation is generally worse for borrowers so demand can fall so rates fall to equilibrium, inflation is good for borrowers which increases demand and rates rise to match.

As sfrenegade implies, just because an effect adds a positive or negative component doesn't mean that the net result will be the same. People often blame Greenspan for not popping the housing bubble via rates, but consider that if you expected housing to increases 20%/year how high would rates have to be to deter you from buying? Conversely now, if people expect housing price declines or fear for their jobs or financial prospects, how low would rates have to be dropped to get them to buy?

Posted by: tc_sf at September 9, 2011 11:51 AM

Just called my lending agent and found out I'll save $300/mo. by refinancing from just 6 months ago. FYI, my mortgage is going to cost roughly the same as renting. If you have the down payment and a long term focus, you're retarded to not take advantage of the current conditions.

Posted by: capitalist at September 9, 2011 1:21 PM

^^^ Unless you're already engaged in a long term ARM with a low margin.

Posted by: The Milkshake of Despair at September 9, 2011 1:38 PM

"If you have the down payment and a long term focus, you're retarded to not take advantage of the current conditions."

That is absolutely right in the sense that is you already own a place you may as well refi into a lower rate. However, this is an indicator of an extremely weak economy and a deflation threat, and prices continue to fall, and when rates eventually tick up it will send prices further down. Thus, this certainly is not a signal to buy, and people get that message as sales remain low and prices continue to fall.

Posted by: A.T. at September 9, 2011 1:41 PM

Last 7 days: 261 new listings, 26 sales. 10X the number of listings as sales: that's a first ever since I've been tracking it.

Posted by: tipster at September 9, 2011 3:06 PM

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