U.S. mortgage rates fall to 5.12% - Bloomberg News 08-20-2009

U.S. mortgage rates fall to 5.12% - Bloomberg News 08-20-2009

U.S. mortgage rates fall to 5.12%
Bloomberg News
August 20, 2009

Aug. 20 -- Mortgage rates for 30-year fixed loans fell this week to the lowest level since May, reducing borrowing costs for hesitant buyers as signs show the recession- plagued U.S. housing market may be bottoming.

The average 30-year rate fell to 5.12 percent from 5.29 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The 15-year rate was 4.56 percent.

Falling home prices and a government tax credit for first- time buyers are bolstering tepid demand. The Mortgage Bankers Associations index of applications to purchase a home or refinance a loan rose 5.6 percent to 527 in the week ended Aug. 14, the Washington-based MBA said yesterday. Builders increased starts on single-family homes for a fifth straight month in July, the Commerce Department said Aug. 18.

Policy makers have to be happy with what they've accomplished, said Donald Rissmiller, chief economist at Strategas Research Partners in New York.

A buyer with a $400,000 mortgage would save about $344 a month under the 30-year fixed rate Freddie Mac announced today compared with the cost a year ago with the rate was 6.47 percent.

The Federal Reserve set out last year to encourage lower mortgage rates by pledging to buy bonds backed by home loans. It increased the size of the program to $1.25 trillion in March. Those bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae brought down yields on mortgage-backed securities and allowed lenders to reduce rates on new loans while still selling the securities backed by them at a profit.

The plan helped drive mortgage rates to a record low 4.78 percent twice in April. The last time they were as low as this week was May 28, when the 30-year rate hit 4.91 percent.

Rates started climbing in May along with Treasury yields on investor concern that higher government debt would fuel inflation. The 30-year mortgage rate climbed to 5.59 percent in the week ended June 11 and has since fallen back.


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