Mortgage Rates Nearing Record Low

Freddie Mac reported today that the average rate on a 30-year, fixed-rate mortgage dropped to 4.78%. That is near the all-time low of 4.71% reported in December of 2009. In its weekly Primary Mortgage Market Survey, Freddie Mac noted that rates have dropped from 5.21% in early April.

At the end of March, the Federal Reserve ended its program to buy $1.2 trillion in mortgage-backed securities. That program was designed to add demand to the fragile market and thereby hold mortgage rates low. Many observers had expected rates to rise, even if slowly, after that program ended. The economic situation in Europe, however, has sent more investors to the safer waters of U.S. Treasuries, which are a benchmark for mortgage rates. That, in turn, has kept rates surprisingly low.

Low interest rates is but one of two components keeping housing at some of the most affordable levels in a decade or longer. Price drops over the past couple of years is the other component.

The affordability that exists in many listed homes today is bringing buyers back. Pending sales continue to be steady despite the expiration of the homebuyer tax credits last month. It is likely that May pending sales will be lower this year than last, but that is simply because so many buyers sped up their buying decision to meet the tax credit deadline. Pending sales in April were up more than 33% over April 2009. Without the urgency of the tax credit deadline, many April sales might have happened in May and June.

Even without the tax credit, buyers are seeing that price reductions have been much more substantial than the $8,000 or $6,500 offered through the tax credits. It is those price levels that are most meaningful to today's buyers. It is why they continue to be active in the market.