Mortgage rates hit four-year low

McLEAN, Va. – Dec. 12, 2008 – Rates on 30-year-fixed mortgages dropped this week to their lowest levels in more than four years, effects of a startling November unemployment report and a government plan to buoy the housing market.

Freddie Mac reported Thursday that average rates on 30-year fixed-rate mortgages dropped to 5.47 percent, down from 5.53 last week. The rate is slightly below this year’s previous low of 5.48 percent during the week of Jan. 24, and the lowest since March 25, 2004, when it averaged 5.40 percent.

Mortgage rates started falling after the Federal Reserve launched a sweeping new effort in late November to aid the U.S. housing market by purchasing up to $600 billion of mortgage-related securities and other debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Fannie and Freddie own or guarantee about half of the $11.5 trillion in U.S. outstanding home loan debt.

Freddie Mac, however, said November’s bleak unemployment report was the main reason for the drop in rates. And on Thursday, the Labor Department reported applications jobless benefits last week rose to a seasonally adjusted 573,000 - up from an upwardly revised figure of 515,000 the previous week, and far more than economists expected.

“Following the release of the November employment report, which showed the largest monthly decline in jobs since December 1974, bond yields fell slightly this week allowing fixed-rate mortgage rates room to ease back a little further,” said Frank Nothaft, Freddie Mac’s chief economist.

Treasury buying has picked up and sent down yields because the economy is in a recession that investors believe will continue. But as investors push yields down, they’re also driving interest rates so low that borrowers get a break. A yield is the annual rate of return on an investment.

Falling rates have caused a jump in loan applications. Though applications edged down last week, they are up for the past month, according to the Mortgage Bankers Association.

Meanwhile, rates this week fell on 15-year fixed-rate mortgages to an average of 5.20 percent, down from 5.33 percent last week, Freddie Mac said.

Rates on five-year, adjustable-rate mortgages rose to 5.82 percent, compared with 5.77 percent last week. Rates on one-year, adjustable-rate mortgages increased slightly to 5.09 percent, from 5.02 percent last week.

The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year mortgages averaged 0.7 point last week. The fee on five-year, adjustable-rate mortgages averaged 0.6 point, while the fee on one-year adjustable-rate mortgages averaged 0.4 point.

Copyright © 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

 

 

Pending home sales down slightly

WASHINGTON – Dec. 9, 2008 – Pending home sales eased against a deteriorating economic backdrop but remain in a stable range, according to the National Association of Realtors® (NAR).

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in October, slipped 0.7 percent to 88.9 from an upwardly revised reading of 89.5 in September, and is 1.0 percent below October 2007 when it was 89.8.

“Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, holding in a generally narrow range,” says Lawrence Yun, NAR chief economist. “We did see a spike in August when mortgage conditions temporarily improved, which underscores two things – there is a pent-up demand, and access to safe, affordable mortgages will bring more buyers into the market.”

Conditions remain uneven around the country, but some areas that are showing healthy gains in pending home sales from a year ago include many Florida and California markets, Providence, R.I.; Lansing, Mich.; Oklahoma City; and Las Vegas.

The PHSI in the South jumped 7.8 percent to 95.9 in October but remains 2.9 percent below a year ago. In the Northeast the index rose 0.6 percent to 68.1 but is 14.1 percent below October 2007. The index in the Midwest declined 4.3 percent to 79.7 in October and is 6.8 percent below a year ago. In the West, the index fell 8.7 percent to 103.7 but is 17.4 percent higher than October 2007.

“Efforts to bring down mortgage interest rates (by the U.S. Treasury) demonstrate a clear understanding of the role housing plays in stabilizing the economy,” says NAR President Charles McMillan. “We’re very encouraged by all of the proposals getting serious consideration in Washington to help home buyers. More sales will stabilize home prices by bringing down inventory, and would lessen foreclosure pressure.”

Yun expects growth in the U.S. gross domestic product (GDP) to contract through the first half of 2009, then stabilize and expand in the latter part of the year – lifted by a home sales recovery. “Given the critical role of housing in an economic recovery, we’re confident sufficient stimulus will be offered to bring more buyers to the market,” Yun says.

Looking at middle-ground assumptions, existing-home sales are forecast to total 4.96 million this year, and then increase to 5.19 million in 2009 and 5.55 million in 2010.

New-home sales for 2008 should total 486,000 this year, decline to 393,000 in 2009 and then grow to 446,000 in 2010. Housing starts, including multifamily units, are projected at 934,000 units in 2008 and 731,000 next year before rising to 772,000 in 2010.

“Price projections are challenging in an environment with so many variables and divergent local conditions,” Yun says. “The home price correction to date has brought prices in line with fundamentals, but buyer pessimism could cause prices to overshoot downward, resulting in further economic deterioration.”

The 30-year fixed-rate mortgage will probably decline to 5.6 percent in the first quarter, rise slowly to 6.0 percent by the end of 2009, and average 6.2 percent in 2010. NAR’s housing affordability index is likely to remain quite favorable, averaging 138 in 2009.

The unemployment rate is estimated at 7.2 percent in the first quarter, rising to 8.3 percent by the end of 2009. Inflation, as measured by the Consumer Price Index, is seen at 0.7 percent in 2009. Inflation-adjusted disposable personal income is expected to grow 1.5 percent in 2009.

© 2008 FLORIDA ASSOCIATION OF REALTORS®