Low Mortgage Rates Point to Perfectly Sunny Summer
This could provide the historic opportunity many buyers have been waiting for.
The lower rates are good news for home sellers, as well. When the Obama administration's tax credit expired at the end of April, some real estate brokers were convincing sellers to reduce asking prices by $8,000 -- the same amount first-time buyers might have gotten through tax credits in the preceding months. With reduced rates, the cost of a home goes down, and sellers might be able to sell closer to their original asking price.
It's also a reversal of fortune for the more than half of all borrowers with 30-year fixed-rate mortgages of 5.75 percent or higher, who might be able to refinance their rates at more than a full percentage point. Furthermore, more people will qualify for mortgages, and others might find they qualify for a slightly larger loan.
"The lower the rate, the more affordable the mortgage payment; it's a great buying opportunity," Melissa Cohn, president of mortgage broker Manhattan Mortgage Co., in New York City, told HousingWatch.
Speaking from her office Monday afternoon, Cohn added, "We are definitely busy. People want to take advantage of this opportunity. I've been in business for 25 years; in terms of fixed rates, this is the lowest I have seen."
Mortgage rates declined this week, upending predictions that rates already had hit rock-bottom and would be increasing again as the Federal Reserve's mortgage-securities purchase program ended. The reason: Investors from around the world who are finding refuge in U.S. Treasury bonds.
Amid concerns about the global economy, America is looking like a safe bet in terms of investment. The rates on the bonds decrease when there is more investment; when Treasury bonds drop, so do mortgage rates.
This wasn't something people were predicting a month ago, when projections were for interest rates to go up, says Manhattan Mortgage's Cohn. On Monday, the average rate for a 30-year, fixed-rate loan was 4.87 percent.
In late March, according to Freddie Mac, the average 30-year mortgage rate was 4.9 percent. By the week of April 8, the rate had gone up to 5.21 percent, then dropped slightly in the following weeks.
The rush to qualify for the tax credit made April a big one for home sales -- existing home sales were up 7.6 percent from March. But there still are plenty for sale. At the end of April, there was an 8.4-month supply of homes nationwide.
Not everyone believes the lower rates will boost the number of home sales. Unemployment remains high, and qualifying for a mortgage is not as easy as it once was.
Nevertheless, the low rates and large number of homes for sale scream opportunity for buyers. But they need to act quickly, says Cohn. While the Wall Street Journal reported that industry-watchers are saying rates could go as low as 4.5 percent this summer, Cohn says no one knows how this is going to play out.
"The mortgage rates are based on the economy, and the economy is volatile right now," she says. "When we start seeing positive signs in Europe, the rates will start going up again."
Cohn's advice: Stay on top of the news. "If the markets are volatile, the rates can change more than once a day.
"Before they head north," she says, "take advantage of the volatility."
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