From WSJ:
A mortgage with an interest rate lower than 4% may have seemed like a pipe dream during the housing boom five years ago, but plenty of Americans are locking them down in August. Could they be kicking themselves in September?
With mortgage rates hovering near 40-year lows and selling prices still depressed, many potential borrowers are wondering whether rates have further to fall.
Last week, the average rate for a 30-year fixed mortgage fell five basis points to 4.44%, the lowest rate on record since data tracking began in 1971, according to Freddie Mac. Fifteen-year mortgages are even cheaper; the average rate on a 15-year fixed loan fell to 3.92% last week, compared to 3.95% in the previous week.
Rates have been steadily declining since the first week of April, when 30-year and 15-year mortgage rates hit 5.27% and 4.62%, respectively, according to HSH.com, a mortgage-data tracking firm. By the second week of June, those rates had fallen to 4.87% and 4.33%, respectively. A month later, they hit 4.71% and 4.20%.
Several factors are weighing down rates. With investors growing more concerned about the economy, many are flocking to Treasury bonds, lowering those yields. (In general, mortgage rates tend to follow Treasury yields.)
Investors are also pricing mortgages according to the assumed life of 30-year mortgages, which is around up to 10 years (taking into account borrowers who sell their home early on, refinance or pay down their mortgage early). Ten-year Treasury yields have been dropping steadily since the end of the first quarter. On April 5 they stood at 4.01%. By Aug. 11, they had fallen to 2.72%.
Meanwhile, investors buying mortgage-backed securities are requesting higher yields from outfits like Fannie Mae, Freddie Mac and the Federal Housing Administration to justify taking on that risk, says Stuart Feldstein, president at SMR Research, which tracks the mortgage market and home-equity lending. As yields rise, mortgage rates continue to drop.
What will determine where mortgage rates go from here?
Inflation could trigger a rise in rates, as lenders try to make up for the value of the real estate investment that they expect to lose, says Paul Havemann, a vice president at HSH.com. However, inflation does not appear to be much of a concern to the Federal Reserve, which announced last week that it would hold the federal funds rate at a historic low and continue to buy Treasurys to stimulate the economy.
If investors grow more convinced that another recession is likely and seek to curb more risk, mortgage rates could fall into another tailspin.
[...] How Low Can Mortgage Rates Go? [...]