The average U.S. rate on a 30-year fixed mortgage fell below 5 percent this week for the first time on record as a government program to buy mortgage-backed bonds lowered borrowing costs.
The fixed rate dropped to 4.96 percent from 5.01 percent a week earlier, Freddie Mac said in a report today. That’s the lowest in data that goes back to 1971, according to the McLean, Virginia-based mortgage buyer.
The Federal Reserve last week started buying $500 billion of mortgage-backed securities in the hopes that lenders will reduce the interest rates they charge. No matter how low rates go, it won’t help homeowners who have lost their jobs or seen the value of their property tumble, said Brian Bethune, chief U.S. financial economist at IHS Global Insight Inc. in Lexington, Massachusetts.
“The Fed is arm-twisting to get rates lower, but we’re 2 million jobs fewer than we were in July and we’ve seen home prices continue to fall, so we’re in a bigger hole,” Bethune said.
The government last week reported employers cut 524,000 workers from payrolls in December, bringing the total number of job losses for 2008 to 2.6 million. Job losses this year may reach 3 million, according to a Global Insight estimate.
Home Prices Tumble Sales of single-family homes in November dropped 7.6 percent from the prior month, the most in two decades, according to the National Association of Realtors. The median home price fell 13 percent to $181,300 from a year earlier in the biggest drop since the Great Depression of the 1930s, the trade group said.
Prices have tumbled 21 percent from a July 2006 peak, according to data from the Chicago-based trade group. The U.S. median probably will fall to $177,300 by the fourth quarter of 2010, according to a Dec. 11 forecast from Fannie Mae, the world’s largest mortgage buyer.
The decline in home prices has put about 25 percent of homeowners “underwater” in their mortgages, meaning they owe more than their properties are worth, said Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut.
That prevents people from refinancing mortgages and selling homes because they would have to pay the difference between the current value of their homes and the amount banks are willing to lend, Darda said.
‘Walk Away’ Incentive It also leads to higher foreclosures, which reduce home values further because repossessed homes sell at “rock bottom” prices, Darda said.
“If people end up upside down on their mortgages there isn’t much incentive to pay — there’s an incentive to send their keys to the bank and walk away,” Darda said.
U.S. foreclosure filings jumped 81 percent last year, according to Irvine, California-based RealtyTrac Inc. A record 2.3 million properties got a default or auction notice, or were seized by lenders, the real estate data company said in a report today.
Mortgage applications in the U.S. rose last week to the highest level in more than five years, led by a surge in refinancing as interest rates fell to a record low. The Mortgage Bankers Association’s index gained 16 percent to 1,324.8 for the week ended Jan. 9, the highest level since July 2003. The group’s refinancing gauge jumped 26 percent and the purchase measure fell 14 percent.
