Mortgage Rates Back Below 5%, Freddie Mac Says

Freddie Mac's widely watched survey of the mortgage market is out this morning with another round of good news for borrowers: The third straight week of falling interest rates has taken the 30-year fixed loan below 5% again. It's hard not to wonder how long this can last.

According to Freddie Mac, the rate on that standard mortgage averaged 4.99% this week, down from 5.06% last week and 5.16% a year earlier. Rates for 15-year fixed loans and for adjustable-rate mortgages, or ARMs, declined as well.

The survey assumes that borrowers have good credit and a 20% down payment and pay 0.7% of the loan amount in upfront lender fees. Many borrowers choose to pay additional points to buy down their interest rates, and sub-5% rates have remained common in recent weeks for solid borrowers who do so.

Freddie Mac economist Frank Nothaft said fixed mortgage rates followed bond yields lower for the third straight week, pushing the typical 30-year rate below 5%, where it stayed for six weeks in November and December.

“Similarly," Nothaft said, "ARM rates eased along with shorter-term rates, as the federal funds futures market indicates no increase in the Federal Reserve’s target rate following its upcoming committee meeting" next week.

The survey, taken Monday through Wednesday this week, showed the rate for a 15-year fixed loan averaged 4.40% with an average 0.6 point, down from 4.45% last week.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.27% this week with an average 0.6 point, down from last week's 4.32%. These loans become adjustable after five years of fixed payments.

The one-year Treasury-indexed ARM averaged 4.32% this week with an average 0.6 point, down from 4.39% last week.

Greg McBride, senior financial analyst at rate tracker Bankrate.com, said disappointing corporate earnings had driven some investors back into the "safe haven" of Treasury securities, bringing their yield down, with fixed mortgage rates following as they generally do.

However, McBride added, "That dynamic may be fleeting as we get to the end of the first quarter."

That is when the Federal Reserve is scheduled to end its $1.25-trillion program to buy mortgage bonds -- purchases that McBride estimated have kept rates lower than they otherwise would be by one-half to three-quarters of a percentage point.

Indeed, the issue of weaning the nation from massive government support for housing "is the $64,000 question," he said.

"Home buyers have been benefiting hugely from tailwinds created by low mortgage rates, tax credits and sharply lower home prices," he said. "But if rates go up and the tax credits expire, with unemployment likely to still be above 9%, what's going to happen then?"

We'll keep you posted.