Mortgage rates sink further, but it might not help sales much

  • Article by: STEVE ALEXANDER , Star Tribune
  • Updated: May 13, 2010 - 8:58 PM

Mortgage rates fell slightly this week to the lowest level of the year, but some experts doubt it makes much difference for prospective home buyers.

The average rate on a 30-year fixed rate mortgage dipped to 4.93 percent this week from 5 percent a week earlier, Freddie Mac said Thursday. It was the lowest level since mid-December, when rates averaged 4.81 percent.

Mortgage rates fell for the third consecutive week as rates also fell on U.S. government securities. Fixed mortgage rates closely track interest rates paid on long-term Treasury bonds.

The reasons for the decline are less than clear. Some market analysts said the drop happened after private investors took up the slack after the end of a Federal Reserve program to buy bonds backed by home loans. Others speculated that investors, fearing the Greek financial crisis and the Dow's unexpected decline, were seeking a safer investment. Still others said it might mean nothing at all.

George Karvel, a real estate professor at the University of St. Thomas in St. Paul, said the interest rate decline is too small to save home buyers any significant amount of money on new mortgages, and probably does not represent a significant downward trend in rates.

"Interest rates have been bouncing around 5 percent for a while, so a small amount like this, 0.07 percent, could be just a random variation," Karvel said.

He said even a much larger interest rate drop of 3 to 4 percent probably wouldn't stimulate home sales, because a long period of relatively low rates has eliminated any pent-up demand for housing. The recently expired federal tax credit of up to $8,000 for new and repeat buyers also likely pulled some sales into March and April.

"The conventional wisdom used to be that the lower the interest rate, the more people that could qualify to borrow money to buy houses," Karvel said. "But there won't be a flood of people coming into the housing market now, because pent-up demand doesn't exist. Qualified buyers already own a home."

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. The last time rates for 30-year fixed mortgages averaged less than 5 percent was the week of March 25, when they were 4.99 percent. This week, the average rate on a 15-year fixed-rate mortgage was 4.3 percent, down from 4.36 percent last week. Rates on five-year, adjustable-rate mortgages averaged 3.95 percent, down from 3.97 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 4.02 percent from 4.07 percent.

The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.

The Associated Press contributed to this report. Steve Alexander • 612-673-4553

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