By Kevin Chiu
Mortgage rates hit new lows this week as U.S. Treasury bonds reached an all-time record low Wednesday after several days of declines. The rate on the benchmark 10-year Treasury hit 2.08%, a drop from 2.98% after Standard and Poor’s downgraded the U.S. credit standing late last week. The drop in interest rates should act as a market mover for home sales and refinancing.
The 30-year fixed rate mortgage averaged 4.32% with 0.7 point, down from a week ago when the loan averaged 4.39%, according to Freddie Mac. The 15-year fixed rate loan also fell, reaching an average of 3.50% from 3.54% a week earlier. The drop in rates could produce another wave of refinancing activity and improve home sales, which have been slow so far this summer.
“Renewed market concerns about the European debt markets led investors to shift funds into U.S. Treasuries, pushing long-term yields lower,” said Freddie Mac chief economist Frank Nothaft.
Mortgage rates are near historic all-time low levels, but were even lower last October when the fixed 30-year loan hit 4.19%. Another decline is possible for rates, but would be a major gamble for anyone considering a lock-in on rates in the current volatile financial marketplace.
The National Association of Realtors reports its home affordability index, which the group has maintained since 1970 is at the lowest level in the index’s history. Home prices have dropped in every market in the U.S. since the real estate peak, but have shown some price improvements since then.
The unprecedented downgrade by S&P was expected to trigger mortgage rates to rise, but actually had the reverse effect as banks and mortgage lending companies slashed rates in order to get the highly qualified borrowers they are lending to these days to apply for mortgages and other loans. Volatility on Wall Street and in World financial markets are destabilizing economies and setting off a series of other problems, including riots in London, which authorities fear could spread to the U.S.
The rate on the 5-year Treasury indexed adjustable rate mortgage averaged 3.13% this week, down from 3.18% a week earlier. The 1-year Treasury ARM averaged 2.89% for the week, a drop from 3.02% last week. The Federal Reserve said they intend to keep interest rates low through at least mid-2013 as economic conditions weaken across most of the country as the U.S. struggles with high unemployment levels.