Will Record Low Mortgage Rates Keep Dropping?

Mortgage rates dropped to an average of 4.59% for a 30 year fixed-rate mortgage last week, the lowest ever recorded by Mortgage Bankers Association since they began keeping track in 1972. And they may not stop there- Zillow’s Mortgage Marketplace reported the average at 4.37% on Tuesday of this week.

While the low rates aren’t creating a spike in demand, new-purchase mortgage applications did show an increase for just the second time in the last two months, according to the Wall Street Journal. We can attribute some of the drop in applications and sluggish growth to the home-buyer tax credit that pushed demand to the early part of the year, but that doesn’t change the fact that home purchases are down 40% from where they were in April.

The action is in refinancing. Applications to refinance were up 9% this week, and up close to 30% over the past month, comprising a full 80% of mortgage activity for the week. But even here there isn’t as much activity as you would expect. Many who would have jumped at refinancing for this rate a few years ago have to consider loss in equity, a lower income, or changes in their credit. And many are looking to sell their homes in the next few years, so closing costs come into play.

How low will mortgage rates drop past record lows until demand picks up enough to stabilize them? After a tumultuous two years and the home-buyer tax surge, answering that question will be tough.

Photo Credit: andrew mace–

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