Mortgage rates drop again

Could the 30-year rate fall below 4%? Experts consider the possibility.

Posted by Karen Datko Thursday, September 02, 2010 11:19:18 AM

This post comes from Marilyn Lewis of MSN Money.

 

Mortgage interest rates dropped yet again this week.

  • Freddie Mac, the quasi-government mortgage company, reported that 30-year fixed-rate mortgages are averaging 4.32% (with an average cost of 0.7 point), down from 4.36% last week -- and from 5.08% this time last year.
  • Fifteen-year fixed-rate mortgages dropped to 3.83% (with 0.6 point), down from 3.86% last week and 4.54% last year.

Freddie Mac started tracking the 30-year fixed-rate in 1971 and the 15-year rate in 1991, and the prices this summer have broken every record.

Here's the new question: Could the 30-year fixed mortgage conceivably drop below 4%? It would be something to tell your grandchildren about. The possibility has previously seemed out of the question. But now economists and mortgage experts are discussing it. Post continues after video.

30-year rates below 4%?

The Pittsburgh Tribune-Review asked economists whether they thought we'll see 30-year fixed rates fall into the 3% region:

"I'm not forecasting rates below 4% on 30-year fixed-rate mortgages, but the potential is there," said Robert Dye, senior economist at PNC Financial Services Group in Pittsburgh.

Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association, told the paper that he, too, thought that lower rates were possible.

 

Fratantoni said that, with falling rates linked to the poor economy, it's possible the trend could persist for a while.

"It is unclear how low rates may go in this pretty rotten environment," Fratantoni said.

 

Lawrence Yun, chief economist at the National Association of Realtors, is skeptical that rates will drop a whole lot lower. From the article:

"I was surprised rates have dropped this low, but I expect by next year at this time, they will go higher," said Yun. "Yes, there is a possibility the rates could drop to 4% or lower, but I don't believe that will happen because our economy is recovering and, depending on job creation, that will create upward pressure on rates."

Each week Bankrate.com surveys experts in the mortgage and banking fields to ask whether they think rates are headed up or down. This week, 52% of the experts say rates will stay the same, 24% think they'll go up and 24% predict they'll drop further.

 

Jeffrey Steed, president of Schmidt Mortgage Co. and immediate past president of the Ohio Mortgage Bankers Association, told WEWS NewsNet5 in Bay Village, Ohio, that although he doesn't expect rates to fall much further, they'll probably stay this low through the end of the year. "An increase in rates would slow down the economy, and there are no signs that's needed," Steed said.

 

What's not changed is that, despite historically low rates, few people are buying homes or refinancing mortgages. The reason for that, Steed says, is hoops and hurdles: The rules have grown stricter and the fees higher. The article said: 

It's not appraisals that are making refinancing difficult. It's the paperwork. New regulations have doubled loan files, and the price of refinancing is up. Expect to pay between $4,000 to $6,000 unless you have an FHA or VA loan.

Predictions about interest rates are entertaining, but it's worth remembering that they're not worth the paper they're printed on -- make that megapixels these days. Case in point: In early April of this year, Nelson Schwartz, European economics correspondent for The New York Times, predicted that "interest rates have nowhere to go but up." So much for prognosticating experts.

 

The downside of low rates

Low rates are a cause for celebration among mortgage buyers, but for other reasons -- big picture and small -- they're not a uniformly good thing.

 

A poster named "Balance Junkie" on the Seeking Alpha blog quotes Nassim Taleb, author of "The Black Swan," who:

… has been saying for quite some time that the Fed steered us into the ditch and that it's shameful that the same group that got us here is still in the driver's seat. Perpetual overspending and record low interest rates have not only failed to solve our problems, but are the major causes of them.

At the individual level, low rates cause financial havoc for the growing numbers of people entering retirement. Balance Junkie says:

Continued low yields hurt savers, retirees, and pension plans who do not want to invest in riskier assets. In order to maintain an annual investment income of $40 000, you would need to have $2 million invested at a 2% rate of return. If yields were at 5%, you would only need to have $800,000 saved to achieve the same income level.

One thing's for sure: With the itsy-bitsy, incremental changes these days -- remember, the 30-year rate dropped only 0.04 of a percentage point this week, to 4.32% -- it's going to be a very long time before rates fall beneath 4%, if they ever do.

 

More from MSN Money:

Tags: home buyinghome financinghomesmortgage rates
9Comments
9/03/2010 8:58 AM
avatar
Hey, waytopeace, it's an amazing thing, this GREED. It blinds people who are otherwise intelligent, to the facts of the situation. Kind of like religious fundamentalism blinds people to the facts about how churches, temples, mosques, etc do their business. We hear what we want to believe and we blindly follow. There is no memory when that happens.
9/03/2010 7:24 AM
avatar
PLEASE DO NOT POST ON ANY INTERNET SITE ON 9/11 IN PROTEST OF MEDIA AND GOVERNMENT. READ BUT DO NOT POST. THANK YOU.
9/02/2010 4:42 PM
avatar
I refinanced last year 30 yrs @ 4.75. There's really no sense in refinancing again given how high the crazy fees are to do so.
9/02/2010 3:31 PM
avatar

Let me get this straight.

 

They get the money at near zero.  They make the mortgage at 4.32% or what not reported in the story.

 

They collect closing costs and fees on that mortgage.  They then sell that mortgage to a tax payer backed agency which means the PUBLIC now owns the loan shouldering no risk to the bank or originator.  We're suppose to be thinking this is a sweet deal?

 

I'm lost for logic on that one.  Wasn't that how we got into this mess originally?  Hello?!  McFly?!  Anyone in there?!

9/02/2010 2:44 PM
avatar

Why is my msn stock & mkt. ticker roport almost 3 hrs. behind in reporting.

I'm in the Eastern time zone ??

 

Please advise--   thanks.

 

                                        Robert Rearick

9/02/2010 2:31 PM
avatar
That's why they invented the adjustable rate loan in the first place.

True, too bad everyone (banks, mortgage brokers, and federal regulators included) let ARMs get so out of hand.  Maybe we need something like TIPS (Treasury Inflation Protected Securities), but for mortgages.  However, banks will have to accept that their interest rate above inflation will be almost as low as that paid on TIPS (very low indeed) since they are already protected from a large chunk of their risk.

9/02/2010 1:07 PM
avatar
I agree waytopeace. The cycle is back FDR style. I look at my parents home loan from the 60's and I thought we will never get there again, boy was I wrong. Put increasing property taxes and you have a well rounded mess. I remember Silicon Valley where owner of their homes lost them because they could not pay the yearly taxes, but they had no mortgage. So who loses? gas companies complain about having higher oil prices, but not when they raise the price on the lower crude they already have...Boy.
9/02/2010 12:01 PM
avatar

Here we go again. It's amazing how little institutional memory

there is in the banking community.

What happens when inflation comes ROARING back & the banks have to pay far higher rates to get money?

They will be stuck with loans at around 4% while they are paying twice that much. It's de ja vu all over again & ANOTHER

major bank bailout just like the 1980s. That's why they invented the adjustable rate loan in the first place.

 

9/02/2010 10:32 AM
avatar

This post comes from Marilyn Lewis of MSN Money.

 

Mortgage interest rates dropped yet again this week.

  • Freddie Mac, the quasi-government mortgage company, reported that 30-year fixed-rate mortgages are averaging 4.32% (with an average cost of 0.7 point), down from 4.36% last week -- and from 5.08% this time last year.
  • Fifteen-year fixed-rate mortgages dropped to 3.83% (with 0.6 point), down from 3.86% last week and 4.54% last year.

Freddie Mac started tracking the 30-year fixed-rate in 1971 and the 15-year rate in 1991, and the prices this summer have broken every record.

Here's the new question: Could the 30-year fixed mortgage conceivably drop below 4%? It would be something to tell your grandchildren about. The possibility has previously seemed out of the question. But now economists and mortgage experts are discussing it. Post continues after video.

30-year rates below 4%?

The Pittsburgh Tribune-Review asked economists whether they thought we'll see 30-year fixed rates fall into the 3% region:

"I'm not forecasting rates below 4% on 30-year fixed-rate mortgages, but the potential is there," said Robert Dye, senior economist at PNC Financial Services Group in Pittsburgh.

Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association, told the paper that he, too, thought that lower rates were possible.

 

Fratantoni said that, with falling rates linked to the poor economy, it's possible the trend could persist for a while.

"It is unclear how low rates may go in this pretty rotten environment," Fratantoni said.

 

Lawrence Yun, chief economist at the National Association of Realtors, is skeptical that rates will drop a whole lot lower. From the article:

"I was surprised rates have dropped this low, but I expect by next year at this time, they will go higher," said Yun. "Yes, there is a possibility the rates could drop to 4% or lower, but I don't believe that will happen because our economy is recovering and, depending on job creation, that will create upward pressure on rates."

Each week Bankrate.com surveys experts in the mortgage and banking fields to ask whether they think rates are headed up or down. This week, 52% of the experts say rates will stay the same, 24% think they'll go up and 24% predict they'll drop further.

 

Jeffrey Steed, president of Schmidt Mortgage Co. and immediate past president of the Ohio Mortgage Bankers Association, told WEWS NewsNet5 in Bay Village, Ohio, that although he doesn't expect rates to fall much further, they'll probably stay this low through the end of the year. "An increase in rates would slow down the economy, and there are no signs that's needed," Steed said.

 

What's not changed is that, despite historically low rates, few people are buying homes or refinancing mortgages. The reason for that, Steed says, is hoops and hurdles: The rules have grown stricter and the fees higher. The article said: 

It's not appraisals that are making refinancing difficult. It's the paperwork. New regulations have doubled loan files, and the price of refinancing is up. Expect to pay between $4,000 to $6,000 unless you have an FHA or VA loan.

Predictions about interest rates are entertaining, but it's worth remembering that they're not worth the paper they're printed on -- make that megapixels these days. Case in point: In early April of this year, Nelson Schwartz, European economics correspondent for The New York Times, predicted that "interest rates have nowhere to go but up." So much for prognosticating experts.

 

The downside of low rates

Low rates are a cause for celebration among mortgage buyers, but for other reasons -- big picture and small -- they're not a uniformly good thing.

 

A poster named "Balance Junkie" on the Seeking Alpha blog quotes Nassim Taleb, author of "The Black Swan," who:

… has been saying for quite some time that the Fed steered us into the ditch and that it's shameful that the same group that got us here is still in the driver's seat. Perpetual overspending and record low interest rates have not only failed to solve our problems, but are the major causes of them.

At the individual level, low rates cause financial havoc for the growing numbers of people entering retirement. Balance Junkie says:

Continued low yields hurt savers, retirees, and pension plans who do not want to invest in riskier assets. In order to maintain an annual investment income of $40 000, you would need to have $2 million invested at a 2% rate of return. If yields were at 5%, you would only need to have $800,000 saved to achieve the same income level.

One thing's for sure: With the itsy-bitsy, incremental changes these days -- remember, the 30-year rate dropped only 0.04 of a percentage point this week, to 4.32% -- it's going to be a very long time before rates fall beneath 4%, if they ever do.

 

More from MSN Money:

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