Those who have been following mortgage loan rates in this country over the past few months, watching them go from above 4.5% to new record lows seemingly every week, have another record to celebrate as rates fall to just 3.87%.
Mortgage rates have never been this low in recorded history (since mortgage rates have been tracked), a testament to the impact the Federal Reserve is having on borrowing and lending in this country. The last few months have been a far cry from the days of 6-8% interest rates in the hey-day of American real estate from 2001 to 2006, before the housing bubble popped so spectacularly.
Now, the only question is whether or not these falling rates will spur even more home buying from investors and homeowners looking to jump into a hot buyer’s market.
Last week, the average rate for a 30-year fixed-rate mortgage loan across the country stood at 3.98%, which was up from previous lows established earlier this year. The weekly drop was a 3.87% decrease, one of the largest weekly drops of the last couple of months. A smaller but still significant margin of decrease was found in 15-year fixed-rate mortgage loans that now stand at 3.14% from 3.24%.
Amid falling home prices – the S&P/Case-Shiller index of home prices in 20 U.S. metro areas fell by 3.7% annually as of November 2011 – and increased numbers of foreclosure listings on the market, low interest rates are very attractive to potential buyers because they offer cheap financing. So far, though, impact of low mortgage rates on improving the real estate market is less than expected.
The main obstacle appears to be a lack of sufficient demand caused by consumers who are either hesitant to buy without reassurance that prices will stabilize in the near future or unable to find financing from lenders who are still dealing with tight credit, toxic assets, and potential lawsuits related to foreclosure fraud accusations.
Add in nearly 11 million American homeowners who owe more on their mortgages than their homes are worth at current price levels, and one can see the difficulty inherent in the market today.
President Obama’s administration is working on helping investors purchase large blocks of government foreclosures and helping homeowners refinance their homes at today’s low rates. As a result, low interest rates could have a positive impact in the near future.