The Lowest Mortgage Rate ... Ever!

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Mortgage rates hit historic lowAmerica reached a milestone on Thursday: The lowest home mortgage rate in history.

According to mortgage financier Freddie Mac, interest rates on a 30-year fixed mortgage dropped below 4% -- to 3.94% to be precise -- for the first time ... ever. And if you can scrape together the cash to manage a 15-year fixed-rate mortgage, the deals are even cheaper -- as low as 3.26%.

Today, we can say, it has literally never been cheaper to finance a home.

But There's Another Important Milestone

Simultaneous with Freddie Mac's astounding announcement, The Wall Street Journal reported that U.S. home ownership (defined as the percentage of owner-occupied housing relative to all occupied housing units) declined 1.1% over the past decade.

Spread over 10 years, that doesn't sound like much, and ownership rates are still the second-highest in history. But it's actually the biggest drop we've seen since the Great Depression.

What Does It All Mean to Homeowners and Home Shoppers?

With stricter bank lending standards making it harder to get a loan, and a weak economy making it harder to afford a home, demand for mortgages is drying up. And as you probably learned in Economics 101, lower demand makes for lower prices.
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If, however, you're one of the lucky few who can afford a house in today's economy, it's never been cheaper to finance. For that matter, if you've already bought, now might be a good time to hit up your banker for a refinancing.

But what if you're one of the even luckier few who not only has money for a house, but a bit of extra cash available for investment? Here's where things get a bit trickier.

What Does It Mean to Investors?

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Low mortgage rates probably bode poorly for the banks who make home loans, so I'd be leery of investing in Bank of America (BAC) or JPMorgan Chase (JPM) until this trend reverses. I'd furthermore counsel against rushing into an investment in PulteGroup (PHM) or KBHome (KBH) on the theory that low rates will make their businesses boom. The facts just aren't supporting that theory.

A better idea -- if you've got the balance sheet to work it -- might be to lock in a lower rate on your current home, then buy a second home at the same low rate. Rent out the first, and live in the second. Because even if people aren't buying houses, chances are they still want a roof over their heads. Today's low rates give you a great chance to play landlord.

Motley Fool contributor Rich Smith does not own shares of any companies named above. The Motley Fool owns shares of Bank of America and JPMorgan Chase.

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