Mortgage Rates At Record Lows, But Should They Be Lower?

• January 3, 2013

by Shilpi Paul

On Thursday morning, Freddie Mac reported 3.34 percent with an average 0.7 point as the average on a 30-year fixed-rate mortgage. The reported rate sits just above the all-time low of 3.31 percent.

From Freddie Mac vice president and chief economist Frank Nothaft:

Mortgage rates started the year near record lows which should continue to aid the ongoing housing recovery. New home sales rose in November to a two-year high and were up 15.3 percent from the previous November. Similarly, pending sales on existing homes increased for the third month in November to the strongest pace since April 2010.

While rates have never been lower, some experts believe they should actually be well below 3 percent.

From an article on Liberty Street Economics, the blog of the Federal Reserve Bank of New York:

As of mid-December, the average thirty-year fixed-rate mortgage was near its historic low of about 3.3 percent, or half its level in August 2007 when financial turmoil began. However, yield declines in the mortgage-backed-securities (MBS) market, where bundles of mortgage loans are sold to investors, have been even more dramatic. In fact, all else equal, had these declines passed through to loan rates one-for-one, the average mortgage rate would now be around 2.6 percent.

The blog post, written by economists, goes on to outline several factors that impact rates and markets. Wonkier readers may be interested in their insights.

Here’s a look at the path of rates since January 2010:

This article originally published at http://dc.urbanturf.com/articles/blog/3.34_mortgage_rates_at_record_lows_but_they_should_be_lower/6471