Cheap home loans provide bedrock for housing

Low mortgage rates could help keep recovery on track in 2013

The cost of taking out a 30-year fixed-rate mortgage edged up slightly this week, while rates on 15-year loans popular with borrowers who are refinancing registered an almost imperceptible drop.

Both fixed-rate and adjustable-rate mortgage (ARM) loans remain at or near historic lows, with rates on 1-year Treasury-indexed ARM loans hitting a new low, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey.

Rates on 30-year fixed-rate mortgages averaged 3.37 percent with an average 0.7 point for the week ending Dec. 20, up from 3.32 percent last week but down from 3.91 percent a year ago. Rates on 30-year fixed-rate loans hit a low in Freddie Mac records dating to 1971 of 3.31 percent during the week ending Nov. 21.

For 15-year fixed-rate loans, rates averaged 2.65 percent with an average 0.7 point, down from 2.66 percent last week and 3.21 percent a year ago. Rates on 15-year fixed-rate loans hit a low in Freddie Mac records dating to 1991 of 2.63 percent during the week ending Nov. 21.

Rates on 5-year Treasury-indexed hybrid ARM loans averaged 2.71 percent with an average 0.7 point, up from 2.70 percent last week but down from 2.85 percent a year ago. Rates on five-year ARM loans hit a low in records dating to 2005 of 2.69 percent during the week ending Dec. 6.

For 1-year Treasury-indexed ARM loans, rates averaged 2.52 percent this week with an average 0.4 point, down from 2.53 percent last week and 2.77 percent a year ago. That’s a new low in Freddie Mac records dating to 1984.

Looking back a week, a survey by the Mortgage Bankers Association showed demand for purchase loans during the week ending Dec. 14 falling by a seasonally adjusted 5 percent from the week before, but up 9 percent from a year ago. The MBA’s survey showed ARM loans only accounted for 3 percent of mortgage applications, and that 83 percent of all home loan requests were for refinancing.

In their latest forecast, Fannie Mae economists said they expect rates on 30-year fixed-rate mortgage to average 3.4 percent next year, down from 3.7 percent in 2012, largely as a result of the Federal Reserve’s continued efforts to keep a lid on mortgage and long-term interest rates.

The Fed is buying $40 billion in mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac each month. The artificial demand created by the Fed’s open-ended program has propped up MBS prices and suppressed their yields.

The Fed has said the program — which also includes $45 billion in monthly purchases of long-term Treasurys — will continue until there is substantial improvement in unemployment, although it may scale back the size and pace of its purchases.

Fannie Mae economists expect existing-home sales to grow by 9.6 percent next year, that new-home sales will surge by 19.5 percent, and that single-family housing starts will grow by 25.7 percent as the housing recovery picks up steam.


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