US mortgage rates dropped for the third consecutive week. The 30-year rate dropped to 4.83% from 4.91%, the lowest since May, mortgage buyer Freddie Mac said today. The average 15-year rate fell to 4.32%, the lowest since records began in 1991.
The Fed's commitment to buy up to $1.25 trillion in mortgage-backed securities bonds brought rates down to record lows in April and rates are close to retracing those lows. As this chart shows, the 30-year mortgage now at 4.83% is close to the April low of 4.78%. The low rates, combined with the first-time homebuyer credit have helped to prop up the housing market. But an article in the WSJ today questioned whether the housing market will be able to withstand the end of the Fed's buying spree (and the resulting rise in rates) and the eventual expiration of the house purchase credit.
Application for new home loans fell last week to a 12 year low.
John Burns of John Burns Real Estate Consulting makes some interesting points in the video below:
- If the government removes the stimulus from low mortgage rates, the housing market will crash.
- If the FHA tightens its lending standards, the real estate market could crash.
Yet, it's hard to imagine that the Fed can continue to keep mortgage rates low until employment picks up. It's also hard to see how the FHA can continue to serve as a new sub-prime lender or lender as last resort while the FHA is close to insolvent.
The bottom line: low mortgage rates and a rough housing market make it a great time to buy, if you have the credit and the cash.
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