Mortgage Rates Drop to All Time Record Lows

By Mike Colpitts

For the second week in a row mortgage rates dropped to all-time record lows as the U.S. government attempts to energize the housing European debt crisis market and Treasury bonds fall to record lows. The fixed rate on a 30-year mortgage averaged 3.94%, falling below 4% for the first time in U.S. history, according to Freddie Mac.

The same mortgage averaged 4.01% a week ago. The rate on the shorter 15-year fixed rate mortgage also saw a drop, but only a decline of two basis points from the previous week to 3.94%. The 5-year Treasury indexed adjustable rate mortgage also fell to 2.96%, which represented a six basis point fall.

Growing fears over the economy in Europe and especially of Greece have destabilized financial market sectors, which have added to troubles in the U.S. economy. The nation is dealing with the highest unemployment level for the longest period of time since the Great Depression.

U.S. Treasuries sank to 1.75% on the benchmark 10-year bond for the first time on record earlier this week before recovering to move higher. Investors have been increasing their purchases of Treasuries as a safe haven, despite lower returns as the stock market remains volatile, experiencing wide swings in value.

worried consumer

“In his testimony to Congress’s Joint Economic Committee Tuesday Federal Reserve Chairman Bernanke said the recovery is close to faltering and stressed the need for lawmakers to act,” said Freddie Mac chief economist Frank Nothaft.

Congress is considering a series of proposals to help repair the nation’s mortgage lending system, including changes at Freddie Mac and Fannie Mae, which have contributed to the financial and foreclosure crises. The two giant mortgage lenders have been on government life support for more than three years.

The average rate on a fixed 30-year mortgage hit 4.01% last week, which had been the lowest in recorded U.S. history going back to the 1940s. The drop came after the Federal Reserve announced that it was going to continue to buy mortgage backed securities in efforts to keep rates low and urged bankers to lend more money to consumers and business.

However, the lower rates have had little impact to push consumers to make more home purchases and buy other items as consumer confidence over the economy remains near all-time lows. The huge drop in mortgage rates, however, has had an impact on real estate investors, who currently make up more than one in four transactions in the residential market and are buying more property to rent.