U.S. 30-Year Mortgage Rate Hits a Record Low of 3.4%

U.S. 30-Year Mortgage Rate Hits a Record Low of 3.4%

Mortgage rates in the United States hit a record low, as the Federal Reserve decided to purchase billions of mortgage-backed securities to lower the borrowing costs for potential home buyers, and to help revitalize the housing market.

U.S. 30-Year Mortgage Rate Hits a Record Low of 3.4%

According to the latest Primary Mortgage Market Survey (PMMS) released by Freddie Mac (OTC:FMCC), for the week ending September 27, the average 30-year-fixed-rate mortgage (FRM) declined to 3.40 percent, from 3.49 percent last week.  During the same period in 2011, the average 30-year FRM was 4.01 percent.

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The average 15-year-fixed-rate mortgage this week is 2.73 percent, down from the average 2.77 percent last week. The average 15-year FRM was 3.28 percent during the same period last year.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) was down from the average 2.76 percent last week, to the current 2.71 percent, while the 1-year Treasury-indexed ARM also declined from 2.61 percent to 2.60 percent. During the same period in 2011, the average 5-year ARM and 1-year ARM were 3.02 percent and 2.83 percent respectively.

In a statement, Frank Nothaft, vice president and chief economist at Freddie Mac, explained the downward trend of fixed mortgage rates is primarily due to the Federal Reserve’s purchase of mortgage securities. Last September 13, the Federal Reserve announced the implementation of QE3 to drive the economic growth, by spending $40 billion every month to buy mortgage backed-securities until the labor market improves.

According to Frank Nothaft, vice president and chief economist at Freddie Mac, the lower rates “should support an already improving housing market”, citing data from the S&P/Case-Shiller 20-city home price index, which showed a 1.2 percent increase for the past 12 months ending in July; the largest annual increase since August 2010. He also emphasized the positive signs of growth in 16 cities, led by Phoenix with a 16.6 percent growth rate.

A report from CNN cited a comment from Keith Gumbinger, vice president of HSH.com, provider of a mortgage information analysis that the Fed’s action is “so far, so good.” Gumbinger expects the mortgage rates would still decline by 1 percent in the coming weeks, as the market experiences the full effect of QE3.

According to CNN, a person who bought a house worth $200,000 at a 4.09 percent 30-year rate, would be able to reduce their house payment by $1,000 per year, by refinancing their loan to the current mortgage rate.

According to Gumbinger, the low mortgage rate is good for the housing market, but it is only part of the solution. He said, “There’s a sizable part of the market that can’t be served, or won’t be served, by low rates. There’s still a lot of people who don’t have jobs, don’t have equity, or have bad credit.” In addition, he pointed out, “Mortgage rates haven’t been the impediment to home sales for quite some time.”

Last month, the National Realtors Association index of pending sales of existing homes for the month of July showed a 2.4 percent growth, while the growth rate on a year-to-year basis was 12.4 percent.

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