Mortgage Borrowing Rates Drop to Unprecedented Record Low

By Mike Colpitts
Lower Treasury bond yields and uncertainty over the world economy drove mortgage rates to another record all-time low this week as the 30-year fixed rate mortgage hit ansingle family homes average of 3.62%. The historic drop in rates was also experienced in the shorter term 15-year fixed loan. The drop in rates is unprecedented as lenders’ attempt to attract more anxious borrowers.

The 15-year fixed rate mortgage, which is gaining in popularity with consumers as they try to pay off their homes in a shorter period of time, dropped to an average of 2.89%, five basis points lower than last week. The 5-year adjustable rate loan also fell to average 2.79%, another record low, according to the Freddie Mac survey.

Refinancing also slowed for the second consecutive week as the Mortgage Bankers Association composite index fell 6.7% for the week ending June 29. The decline in applications came despite record low borrowing rates as consumers grew increasingly weary over the weak U.S. economy.

The seasonally adjusted purchase index increased less than 1% indicating slow home sales in most of the country. Home prices are the most affordable in most areas of the country in more than 25 years.

The largest share of mortgage activity over the past three years, however, has been refinances as consumers attempt to reduce mortgage debt with more than three out of four (78%) applications for mortgages.

Despite the record low rates being marketed by most lenders, fewer and fewer consumers are able to qualify for the lowest rates available. The average contracted rate for a 30-year fixed rate loan offered to borrowers last week with conforming loan balances of $417,500 or less was 3.86%, nearly a full quarter-point from the low rates reported in the Freddie Mac survey.

Signs of weakness in the U.S. economy abound. Consumer spending was revised downward for April to a gain of just 0.1% and was unchanged in May, according to the Commerce Department. High unemployment also troubles the nation, with some areas experiencing double-digit unemployment levels for more than four years. Weaker manufacturing drove long-term Treasury yields lower over the week, allowing mortgage rates to hit new all-time record lows.