Mortgage Rates Close in on Record Lows but may not be Low for Long...

Mortgage Rates Close in on Record Lows but may not be Low for Long...

According to Freddie Mac's Primary Mortgage Market Survey, the 30-year fixed-rate mortgage averaged 4.78 percent for the week ending May 27, down from the week earlier when it averaged 4.84 percent.

Last year at this time, the 30-year rate averaged 4.91 percent. Rates have not been lower since the week ending December 3, 2009, when it averaged 4.71 percent.

“These low rates will help to elevate home-buyer affordability and soften the effects of the sunset of the home-buyer tax credit,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. “The credit substantially propelled home sales, as reflected in the strength of the April existing and new home sales, which were up 7.6 percent and 14.8 percent, respectively."

Nothaft says the latest information from Freddie Mac’s repeat-transactions home-price indexes also show some encouraging signs, with national metrics either slowing their descent or showing a modest rise, suggesting that the sharp downturn in national indexes since 2006 may be nearing an end.

Meaning the record-setting low mortgage rates may not be around long.

Signs of improving economic conditions could lead Federal Reserve Chair Ben Bernanke to raise key interest rates, driving up mortgages, said Stephen Stanley, chief economist at Pierpont Securities LLC.

The evidence includes more consumers are paying their bills on time. Past-due accounts at American Express declined 34 percent compared to a year ago, and Target Corp. reported its lowest delinquency rate in two years during the second quarter.

In another sign of economic improvement, fewer banks reported tightening lending standards this month, one reason consumer borrowing rose for the second time in three months.

“If lending standards start to stabilize, that’ll be another reason to remove the emergency measures, including the zero rate,” said Jay Bryson, a senior global economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who formerly worked at the Fed in Washington.

Source: Freddie Mac
Source: Bloomberg, By Bob Willis and Anthony Feld (05/28/2010)