Rates are low and dropping

Rates are low and dropping

Here is an interesting article on mortgage rate and where they are headed.

NEW YORK (Reuters) -- Demand for U.S. mortgage applications was unchanged during the Christmas holiday week, holding the highest levels in more than five years with loan rates near record lows, an industry group said on Wednesday.

Borrowing costs have tumbled more than 1-1/2 percentage points from summer peaks and are widely expected to slide further as the government steps in to stabilize the worst housing market since the Great Depression.

The Mortgage Bankers Association's seasonally adjusted index of mortgage application activity was unchanged last week at 1,245.7, matching the highest level since July 2003 set the previous week.

Requests for home purchase applications climbed 1.4% to 320.9 on a seasonally adjusted basis, while refinancing application demand slipped 0.4% to 6,733.8 last week.

The refinancing index had surged by nearly 63% in the prior week, also to the highest level since July 2003.

Fast-falling mortgage rates are driving demand, particularly for refinancing.

Fixed 30-year home loan rates averaged 5.03 percent last week, marginally lower than 5.04 percent a week earlier but well below the 6.59 percent summer peak in July, according to the Mortgage Bankers Association.

Last week's rate was the lowest since June 2003, the trade group said.

The Federal Reserve's plan announced in November to buy up to $500 billion of mortgage-backed securities, and its pledge this month to expand those purchases if needed to lower mortgage rates, has already cut borrowing costs.

On Tuesday, the Fed said it would start buying in January and purchase up to a half trillion dollars of mortgage bonds within six months.

Affordability is improving by other measures as well, with a record annual drop in October bringing home prices down more than 23% from their summer 2006 highs, according to Standard & Poor's/Case-Shiller home price measures reported on Tuesday.

Consumer confidence, meantime, plunged to a record low in December in response to the worst job market in 16 years.

Consumers are reluctant to boost spending when unemployment is spiking and when they could be committing money to a house that could cost much less later, analysts said.

Home owners who want to refinance would be unable to if the value of their home has fallen below the size of their mortgage.

More rigid lending criteria also mean that many mortgage applications may not be approved.

While mortgage bond purchases by the government press home loan rates down, "the one thing the Fed and the Treasury cannot do is improve the credit quality of the borrower," said Kevin Cavin, mortgage strategist at FTN Financial in Chicago.

The government interventions "can drive down primary mortgage rates and make getting loans much more affordable, make a borrower's monthly payments lower -- if they can qualify," he said on Tuesday.


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