Mortgage Rates Drop to New Record Once Again

According to Freddie Mac reports, mortgage rates have dropped to historic lows for three weeks in a row, raising the Housing Affordability Index to record highs for May 2012. The index measures how easily an average household with median income can afford a median-priced home. Rates continue to drop even while the economy appears to be improving.

Freddie Mac vice president and chief economist, Frank E. Nothaft, charges the continuing European debt issues with upstaging U.S. economic gains, causing the paradoxical decline in interest rates. Fixed mortgage rates and Treasury bond yields, in particular, continue to decline even while industrial production, for example, had its greatest increase since the end of 2010 and regardless of consumer sentiment, which the University of Michigan reports is at its highest since January 2008.

As seen in the Primary Mortgage Markey Survey (PMMS), the way these rate declines break down in the four major mortgage categories—30-year and 15-year fixed rates; and five-year and one-year adjustable rates—and over the rates from a year ago are as follows:

Fixed-rate mortgages showed as 3.79 percent for 30-year and 3.04 percent for 15-year. Both were down an average of 0.7 for the week that ended on May 17, 2012. One year ago, 30-year rates were at 4.61 percent and 15-year rates were 3.80 percent. Since December 2011, 30-year rates have been below 4 percent.

The five-year adjustable rate mortgage (ARM), known as the Treasury-indexed hybrid, averaged 2.83 percent, which is up from last week’s 2.81 percent, but well below last year’s 3.48 percent. Additionally, similar one-year ARMs averaged 2.78 percent, which, although 0.5 percent higher than last week, is 0.37 below the rate this time last year.

For those that can qualify, there has not been a better time to buy or build. In fact, the home construction industry reports housing starts at well above forecasted levels, according to Nothaft, and single-family home construction in May out-paced the preceding three-month average. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) shows single-family homes up five points in May 2012: the strongest reading since May 2007.

The National Association of Home Builders (NAHB) chairman, Barry Rutenberg, reports that buyer traffic and sales have “resumed the gradual upward trend in confidence” that we evident at the start of the year. The result is that prices are more stable and affordable, and that encourages more buyers to purchase new homes. The NAHB chief economist, David Crowe, believes that the pace of recovery would be more pronounced if access to credit would improve. Other factors impeding a full upswing are the rising cost of building materials and faulty appraisals.

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