Freddie Mac says 30-year fixed mortgage plunges below 3.5%

Courtesy latimes.com
The typical rate on a 30-year fixed mortgage tumbled below 3.5% for the first time this week, Freddie Mac said -- the latest record low in a trend that has fired up refinancings but done little to ignite housing demand.
Freddie Mac's weekly survey of what lenders are offering to rock-solid borrowers showed the 30-year rate at an average of 3.49%, down from 3.53% last week. The 15-year fixed loan fell from 2.83% to 2.8%.

Borrowers would have paid 0.7% of the loan amount in lender fees and points to obtain the rates, according to Freddie Mac.

The survey underscores the success of the Federal Reserve in pushing down interest rates to support a sputtering economy that shows few signs of inflation.

In late July 2010 and 2011 the typical 30-year rate in the Freddie Mac survey was just over 4.5%, more than a percentage point higher than now. The 30-year rate was above 6% in 2006 and most of 2007, over 8% back in 2000, and over 10% in 1990. Back in the bad old days of inflation, the rate topped 18% for 10 weeks in 1981.

This year's record rates have created a frenzy of refinancing by homeowners who still have equity in their properties and are current on their loans. But they have done little to spur housing demand, as Celia Chen, a housing economist for Moody's Analytics, pointed out.

"Home sales are slowly improving, but the pace of sales is still very weak," Chen said Thursday. The low rates are only available to households with excellent credit and earnings, she noted, and sales are constrained by weak job growth and millions of homeowners who owe more on their mortgages than their homes are worth.

"I guess the good news is that if rates were to go up back up to 4.5%, it probably wouldn’t have a huge negative impact on home sales," Chen said.  "The impact on refinancing, however, would be decidedly negative."