They have made home-buying and refinancing more attractive to those who can qualify. the average rate on the 30-year loan fell to 3.75 percent. That’s down from 3.78 percent last week and the lowest since long-term mortgages began in the 1950s. The 15-year mortgage, a popular refinancing option, slipped to 2.97 percent. That’s down from 3.04 percent last week.
Rates on the 30-year loan have been below 4 percent since early December. The low rates are a key reason the housing industry is showing modest signs of a recovery this year.
A drop in rates could also provide some help to the economy if more people refinance. When people refinance at lower rates, they pay less interest on their loans and have more money to spend.
In April, sales of both previously occupied homes and new homes rose near two-year highs. Builders are gaining more confidence in the market, breaking ground on more homes and requesting more permits to build single-family homes later this year.
A better job market also has made more people open to buying a home. Employers have added 1 million jobs in the past five months. The unemployment has dropped a full percentage point since August, from 9.1 percent to 8.1 percent in April.
Still, the pace of home sales remains well below healthy levels. Economists say it could be years before the market is fully healed.
Many people are having difficulty qualifying for home loans or can’t afford larger down payments required by banks. Some would-be home buyers are holding off because they fear that home prices could keep falling.
Mortgage rates have been dropping because they tend to track the yield on the 10-year Treasury note, which has fallen this week to a 66-year low. Uncertainty about how Europe will resolve its debt crisis has led investors to buy more Treasury securities, which are considered safe investments. As demand for Treasurys increase, the yield falls.
Last week, the Mortgage Bankers Association upwardly revised its estimate for 2012 mortgage refinances from approximately $670 billion to $870 billion. This revision represents more than $400 billion above last summer's forecast.
While forecasting trends in mortgage lending is an inexact science, the update suggests that U.S. households are taking advantage of today's low mortgage rates. However, low mortgage rates are only part of the refinance equation. Mortgage guidelines matter, too.
As compared to late-last decade, today's mortgage lenders carry tighter requirements on income, assets, credit and home equity. Fewer homeowners meet today's tougher credit standards, and that is one reason the Mortgage Bankers Association expects refinancing to subside after this year's peak.
After the expiration of the HARP refinance program December 31, 2013, the pool of qualified applicants is expected to shrink even more.
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