Record Low Rates
The average rate on 30-year fixed mortgages is down to 4.32%, according to Freddie Mac’s latest survey. At these levels, mortgage rates have gone back to 50-year lows set during the fourth quarter of last year. Mortgage rates are closely linked to yield on 10-year U.S. Treasuries, which have hovered down in the 2.15% trading range.
Helping keep mortgage rates low was the Federal Reserve’s affirmation to keep interest rates at today’s low levels through 2013. Despite this, many borrowers are still unable to benefit from the low rates.
Roughly 58% of borrowers with a 30-year mortgage are unable to refinance their existing loans to a lower rate because of ultra-restrictive lending standards, according to Credit Suisse research. Until mortgage lenders can get back to lending and stop being gun shy, low mortgage rates will have a limited positive impact on the housing market.
Despite recent monthly increases, nationwide home prices are still looking for a bottom. The S&P/Case-Shiller 20-City Composite closed May at a seasonally adjusted figure of 140.95 or around 4.8% lower compared to the same month in 2010. Over the past five years, nationwide home prices are 46.50% lower.
‘We see some seasonal improvements with May’s data,’ says David M. Blitzer, Chairman of the Index Committee at S&P Indices. ‘This is a seasonal period of stronger demand for houses, so monthly price increases are to be expected and were seen in 16 of the 20 cities. The exceptions where prices fell were Detroit, Las Vegas and Tampa. However, 19 of 20 cities saw prices drop over the last 12 months. The concern is that much of the monthly gains are only seasonal.’
On an annual basis, Washington DC was the only metro area with a positive rate of change, up 1.3%. The remaining 19 cities and the 10- and 20- City Composites were down in May 2011 versus the same month last year. Minneapolis fared the worst posting a double-digit decline of 11.7%.
Earlier we mentioned how mortgage rates are closely tied to yields on 10-year U.S. Treasuries. Put another way, the performance of U.S. Treasury market will tell you which way mortgage rates are heading. From there, a person can deduce its impact on other asset prices, like residential real estate, commercial real estate and other interest rate sensitive assets.