mortgage rates

Just when many started believing that home sales wouldn't pick up, no matter how low interest rates dropped, the Mortgage Bankers Association registered a slight rise in new mortgage applications. Last week, as 30-year-fixed mortgage rates dropped to around 4.59 percent, new mortgage applications increased 3.4 percent. And while current levels of new home loans are still 40 percent below an April high for 2010 (due to the federal homebuyer tax credit), new refinance applications are up 30 percent in the last four weeks (and up 9 percent in the last week), only slightly below their peak in May.

Even with a potential double dip recession underway and fixed-rate mortgages boasting all-time low rates, some homebuyers are taking a shot at adjustable-rate mortgages (ARMs). While 30-year fixed-rate loans are hovering around the 4.5 to 4.75 percent interest mark, buyers who opt for 5/1 adjustable-rate products will enjoy rates as low as an astonishing 3.1 percent for the next five years.

"What we're seeing right now with five-year adjustable rate mortgages is interest rates that are shockingly low," explains Neil Merritt, senior director for Sherman Bridge Lending in Colleyville, Texas. "The low rates are bringing a number of buyers back into the adjustable rate market."

If you're looking for a home, the best time to apply for financing is now, now, or now. After reaching record lows last week, mortgage rates dropped a hair lower, making it an optimum time to apply for new loan. The average rate for a 30-year fixed-rate loan fell to 4.57 percent this week, as compared to 4.58 percent last week. Rates haven't been this low since the 1950s. Meanwhile, home sales remain down -- but then again, so do prices.

An apple a day keeps the doctor away, while a low mortgage rate ... keeps recession at bay?

That's the thinking at Morgan Stanley, where economists have published research arguing, among others things, that rock-bottom mortgage rates are helping the US economy avoid a double-dip recession.

In the report, Richard Berner and David Greenlaw acknowledge that the U.S. economy continues to face significant risks, such as potential spillover from Europe's sovereign debt crisis and a slowdown of housing demand after expiration of the homebuyer tax credit.

But they argue that the recent wave of refinancings, along with other factors such as lower energy costs, should offset any negatives.

"The dip in conventional 30-year mortgage rates to about 4.8 percent has triggered a minor refinancing boom," they write. "Reduced debt service will further add to discretionary spending power for many mortgage borrowers."

In plain English: Less money spent on servicing your mortgage is more money to spend on goods and services, such as sandals, pedicures and Lady Gaga's used jewelry. This spending goes straight to business' bottom lines, which then makes them more likely to hire. And that, in short, is how you fuel economic growth.

Unfortunately, not many economists agree with the premise.

Be a smarter shopper with our tips on what you need to know before entering a home lottery, whether to buy a $1 house, and how to protect yourself against real estate scammers.

See what else was hot on HousingWatch this week:

1. Eleanor Roosevelt's $14M NYC Townhouse Perfect for Bush Twin
Though its decor may recall its famously frumpy former resident, Eleanor Roosevelt's 5-story Upper East Side townhouse could be a perfect fit for the right owner. The house-hunting Barbara Bush, perhaps? Read more.

2. Tina Fey Selling New York Condo for $2.3M
Tina Fey has finally gotten around to listing (at a profit) the Upper West Side condo she vacated last year in favor of bigger digs in the same 'hood. Sounds like the perennially downtrodden Liz Lemon does okay for herself! Read more.

Interest rates dropped again last week as economists argued about the financial crisis in Europe and how bad it might get. As HousingWatch reported, Greece and Portugal's bad news could be the American homebuyers' gain.

But how does such faraway news directly affect the U.S.?

Average interest rates for 30-year, fixed-rate home loans flew to 4.78 percent for the week ending May 27, according to the Freddie Mac Primary Mortgage Market Survey.

Since December, writers like me have said over and over again that interest rates would rise. But here we are half-a-year later and interest rates are barely higher than the record 4.71 percent interest rate recorded last December - the lowest average interest rate recorded by Freddie Mac since it started keeping track in 1971.

What's going on?

Back at the end of March when the Fed stopped buying mortgage-backed assets, economists predicted that mortgage interest rates would start to drift higher toward 6 percent.

Well, they were wrong: Rates dropped to 4.2 percent for a 15-year fixed-rate mortgage and 4.87 percent for a 30-year fixed-rate mortgage.

What caused interest rates to head in the opposite direction? We can credit a perfect financial storm that is actually helping home buyers and home refinancers for a change:

• The Euro-zone financial woes drove investors to the safe haven of bonds, so that's helping to keep rates low.
• Purchase applications dropped 27 percent last week reducing pressure on rates, according to the Mortgage Bankers Association.
• With this weak financial news, it's likely the Fed will not raise its benchmark until at least August and probably not until October, if not later.

So if you thought you missed your best chance to refinance, think again.

Las Vegas has been one of the hardest-hit residential real estate markets of the past two years. More than 9,000 new homes are empty, and the foreclosures keep coming. Real estate prices are down by 60 percent from 2006.

But buyers want new houses, according to one builder: "We're building them because we're selling them."

There is a lot of truth in that statement, says David Crowe, chief economist at the Washington-based National Association of Homebuilders. The association's most recent survey, which polls its membership monthly to get its read on the market, reported its highest level of confidence in the housing market since August 2007. The survey asks builders -- mostly family-owned, local builders -- about their current sales, the amount of traffic they are getting in calls and model homes, as well as their expectations for the next six months.

"Older homes might not be as energy-efficient, or they have been abused," says Crowe. "If the cost to purchase an existing home and a new home are the same, many people will opt for the new home."

Still, with so many homes vacant across the U.S., does new construction in Vegas make sense?

Everyone knows interest rates are going up ... eventually. But so far this year they've stayed much lower, much longer than experts predicted.

Average interest rates for 30-year home loans slid to 5.06 percent (plus 0.7 percent in fees) for the week ending April 29. That's down from 5.07 percent the week before. Interest rates have been a hair above 5 percent for the last three weeks, according to Freddie Mac's Primary Mortgage Market Survey.

But rates were supposed to be racing upward. A year ago, Freddie Mac predicted rates would average 5.5 percent this quarter. Freddie Mac has already revised its prediction down to 5.3 percent.

So what's going on?

Worried about interest rates? If you're looking for a home loan, you can breath a little sigh of relief: after inching up in recent weeks, average interest rates fell back to their near-historic lows.

Average interest rates for 30-year home loans slid to 5.07 percent (plus 0.6 percent in fees) for the week ending April 15. That's down from an average of 5.21 percent the week before, according to Freddie Mac's Primary Mortgage Market Survey.

"After rising for four consecutive weeks, mortgage rates eased back to where they were two weeks ago and still remain historically low," said Frank Nothaft, Freddie Mac vice president and chief economist.

Bracing for higher mortgage rates? Well, relax. Looks like rates will rise much more slowly than anyone anticipated.

Number crunchers now predict that interest rates for 30-year, fixed-rate home loans will average 5.6 percent in the fourth quarter of this year, according to Freddie Mac's latest Economic and Housing Outlook. That's a big change from just two months ago, when they predicted interest rates would rise to 6 percent.

What's happening? Interest rates were expected to rise this year as the federal government ends a massive effort to keep interest rates down during the financial panic. The government is ending its buying spree, as promised. But so far, private investors have pumped cash into the mortgage market fast enough to replace the federal dollars that are no longer flowing, keeping interest rates relatively low.

"Financial market conditions are improving," says Frank Nothaft, Freddie Mac vice president and chief economist. "Liquidity is returning to the markets, even as the Fed discusses its eventual exit from the extraordinary measures put in place during the crisis."

Home-buyers have been enjoying rock-bottom mortgage interest rates. But several key factors threaten to disrupt the low rates, as well as the budding housing recovery.

It has the makings of a perfect storm: The Federal Reserve may stop propping up the marketplace at the end of March. The home buyer tax credit ends April 30 (you have until June 30 to complete any April deals). And, in the coming months, Fannie Mae and Freddie Mac could top out their mortgage portfolios and not be able to buy any more.

All the experts say long-term interest rates are going up. They're supposed to get to six percent by the end of the year, according to several predictions. But interest rates didn't rise last week. Instead they fell again–for the third week in a row.

What's going on?

The average 30-year fixed-rate mortgage sank to 4.99 percent, according to Freddie Mac's Primary Mortgage Market Survey for the week ending January 21. That's down from 5.14 percent for the week ending December 31.

The government may be making loud noises about how it wants to bring down home mortgage rates to help consumers. But the biggest beneficiaries of the government largess have been the banks -- not borrowers, according to a report in the Wall Street Journal.

Backed by cushy government programs, banks have boosted their profits margins on mortgage loans. But don't expect them to pass on the savings, even as mortgage rates inch higher.

Freddie Mac has placed its bet on where interest rates are going, and it's higher.

The average 30-year, fixed-rate mortgage rate will be 6 percent by the fourth quarter of this year, according to Freddie's recently released "January 2010 Economic and Housing Market Outlook."

The average rate was 4.96 percent for the week ending January 14, according to the latest Freddie Mac mortgage survey. But it may be one of the last weeks for rates under 5 percent. Freddie predicts steady increases over the next year as rates rise from their record low of 4.71 percent this December.