How low can mortgage rates go
Euro zone instability and worsening economic indicators at home are driving interest rates down.
Michelle Ruiz and Nilson Ruiz listen as Wells Fargo home mortgage consultant, Michael Carreras, helps the potential homeowners with their an application for a down payment assistant grant at the Miami Airport Convention Center in Miami, Fla.
Defying logic, mortgage rates sunk to new lows this week on news that the U.S. and global economy could be slowing down more than economists originally anticipated.
Interest rates on 30-year fixed-rate mortgages averaged 3.66 percent, Freddie Mac reported Thursday, falling from a 3.71 percent average last week. Borrowers opting for a 30-year fixed-rate mortgage this time last year were stuck with a (comparatively) sky-high interest rate of 4.5 percent.
"Mortgage rates are reaching record lows based on overall uncertainty in Europe," says Doug Lebda, CEO of LendingTree.com.
That uncertainty has spooked investors causing a rush into the perceived safe-haven of U.S. treasuries, which drives down yields. Because mortgage rates are pegged to the 10-year U.S. treasury, when yields fall on treasuries, mortgage rates retreat as well, Lebda says.
Freddie Mac vice president and chief economist Frank Nothaft blamed worsening economic data for the
continued retreat of mortgage rates. Measures of industrial production fell in two of the past three months, disappointing forecasters who predicted stronger output. Meanwhile consumer sentiment registered its lowest level this year, according to a University of Michigan survey, signaling increased anxiety among Americans about the outlook for the economy.
Still, there are some bright spots for the housing market amid the gloomy data bringing mortgage rates down. Construction activity, a sector that has historically fueled economic recoveries, seems to be gaining a foothold after being all but absent following the housing bust. Confidence among builders has followed suit, rising to its highest reading in more than five years.
The overarching question for the mortgage market going forward isn't how much lower rates can go, Lebda says, but who will be able to obtain a mortgage. Despite record low rates, it's still very difficult to get through the mortgage application process and get approved.
"Underwriting standards remain stricter," he says. "There's still a more risk-averse attitude on [the part] of the lender."
Meg Handley is a business reporter for U.S. News & World Report. You can reach her at email@example.com and follow her on Twitter .Source: www.usnews.com