Rates on 30-year fixed-rate mortgages dropped below 4 percent this week for the first time in history amid increasing global economic concerns, Freddie Mac said in releasing its Primary Mortgage Market Survey.
A separate survey by the Mortgage Bankers Association suggested many homeowners and would-be homeowners are unwilling or unable to take advantage of record low rates, with demand for refinancings and purchase loans both falling last week.
Fannie Mae economists are projecting that mortgage rates will stay well below 5 percent through 2013, and that demand for purchase loans will more than double in the next two years.
Freddie Mac’s survey showed rates on 30-year fixed-rate mortgages averaged 3.94 percent with an average 0.8 point for the week ending Oct. 6, down from 4.01 percent last week and a 2011 high of 5.05 percent in February. Rates on 30-year fixed-rate mortgages have never been lower in Freddie Mac records dating to 1971.
Rates on 15-year fixed-rate mortgages averaged 3.26 percent with an average 0.8 point, down from 3.28 percent last week and a 2011 high of 4.29 percent in February. The 15-year fixed-rate loan, often used by homeowners to refinance, set a new low in records dating to 1991.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loan averaged 2.96 percent with an average 0.6 point, down from 3.02 percent last week and a 2011 high of 3.92 percent. That ties a low, in records dating to 2005, last seen in September.
Rates on one-year Treasury-indexed ARM loans averaged 2.95 percent with an average 0.5 point, up from 2.83 percent last week but down from a 2011 high of 3.4 percent in February. The one-year ARM hit a low in records dating back to 1984 of 2.81 percent during the week ending Sept. 15.
Freddie Mac chief economist Frank Nothaft said interest rates for one-year ARMs rose as the Fed began moving $400 billion currently invested in short-term government bonds into Treasurys with remaining maturities of six years to 30 years, which will help reduce upward pressure on long-term interest rates.
Under a plan dubbed "Operation Twist," the Fed is also reinvesting principal payments on the $1 trillion the government holds in Fannie Mae and Freddie Mac mortgage-backed securities (MBS) and debt back into agency-backed MBS as those investments mature.
Nothaft noted that Federal Reserve Chairman Ben Bernanke testified before Congress this week that the recovery is close to "faltering" and stressed the need for lawmakers to act.
The Mortgage Bankers Association’s Weekly Mortgage Applications Survey showed demand for purchase loans fell a seasonally adjusted 0.8 percent during the week ending Sept. 30, and was down 12.1 percent from a year ago.
Requests to refinance were down 5.2 percent from the week before, but accounted for nearly eight out of 10 mortgage applications.
In a Sept. 19 forecast, economists at Fannie Mae projected that mortgage purchase loans will total just $394 billion this year, down 16 percent from last year and 33 percent from 2009.
Fannie Mae’s forecast calls for purchase-loan demand to more than double within two years, growing 66 percent next year to $654 billion, and surging again in 2013, to $853 billion.
The mortgage giant’s economists don’t see upward pressure on mortgage rates, projecting that 30-year fixed-rate loans will average 4.2 percent during the final quarter of 2011 and stay there for the first half of 2012.
Fannie Mae’s forecast then calls for a gradual rise in rates for 30-year fixed-rate loans, to 4.4 percent during the final three months of 2012 and an average of 4.6 percent during 2013.