Mortgage Rates Below 5% Spur Activity

The Mortgage Bankers Association (MBAA) reported last week the average interest rate on new 30-year fixed-rate loans nationwide was 4.97%, nearing the lowest level in decades. And on Thursday, Freddie Mac reported that the average fixed rate on a 15-year home loan had dropped to 4.46%, the lowest level on record. Not surprisingly, loan applications jumped 13% last week and are up 50% from late June. Aside from the holy grail rumor of 4.5% last summer, 5% seems to be the magic number that really spurs mortgage activity. Most of the activity has been for refinancing, but applications for new homes are growing as well, according to the MBAA. Most thirty year, fixed rate mortgages wind up in the pools the Fed buys and presently it buys 80% of these securities as they are created. Economists estimate that rates are two-tenths to one-half of a percentage point lower than they would be otherwise, according to the MBAA. The Fed also said it would stop buying mortgage bonds at the end of March, the mortgage bankers group is projecting that 30-year fixed rates will be back at 6% by the end of 2010.