(Adds quotes, data on home sales)
By Lynn Adler
NEW YORK Nov 25 U.S. mortgage rates sank to or
near record lows in the past week, home funding company Freddie
Mac FRE.N said, improving affordability in a battered U.S.
housing market that is starting to gather steam.
U.S. 30-year mortgage rates dropped to match a record low
set in April, while the 15-year home loan rate fell to a new
all-time low, Freddie Mac said on Wednesday.
The average 30-year rate dropped 0.05 percentage point to
4.78 percent in the week ended Nov. 25, equaling the lowest
rate since Freddie Mac started tracking rates weekly in 1971.
Fifteen-year mortgage rates dipped 0.03 percentage point in
the week to 4.29 percent, the lowest since Freddie Mac began
tracking them weekly in 1991.
"Affordability conditions just seem to be improving by the
minute," said Millan L. B. Mulraine, economics strategist at TD
Securities in Toronto.
The newest test of record low borrowing costs comes just as
the Obama administration this month extended another key
housing incentive, an $8,000 first-time homebuyer tax credit,
and added a $6,500 credit aimed at current homeowners looking
"When you add the tax credits, the favorable mortgage rates
and prices that continue to be as low as they can go, the
conditions point to an upswing in activity at some point as
homebuyers who are sitting on the sidelines decide to move back
into the market," he added.
A year ago, the 30-year mortgage rate averaged 5.97 percent
and the 15-year rate stood at 5.74 percent.
Sinking rates come as the government enters the final
months of massive interventions in the financial markets aimed
at cutting borrowing costs to revive housing and the economy.
The Federal Reserve is scheduled to complete more than $1.7
trillion in mortgage-related and Treasury securities purchases
by March 31.
"Interest rates for 30-year fixed-rate loans are currently
0.8 percentage points below this year's peak set in mid-June,
which shaves roughly $100 off the monthly payments on a
$200,000 mortgage," Frank Nothaft, Freddie Mac chief economist,
said in a statement.
Long-term mortgage rates have fallen for four straight
weeks, according to Freddie Mac.
Lenders charged an average 0.7 point in fees on the 30-year
mortgage and 0.6 point on the 15-year loan, unchanged in the
Data this week has shown sales of new and existing homes
jumped in October, surpassing forecasts, suggesting some
stability after a three-year plunge into the deepest housing
market downturn since the Great Depression.
New home sales rose 6.2 percent to the highest level since
September 2008, the Commerce Department said on Wednesday.
Sales of existing homes increased 10.1 percent to the highest
in 2-1/2 years, the National Association of Realtors said on
Sales likely were bolstered by buyers rushing to beat the
deadline, which at the time was November 30, to close loans and
take advantage of the tax credit.
Mortgage applications to buy homes dipped as that deadline
approached and have stayed low, according to data from the
Mortgage Bankers Association, but are widely seen rising again
now that the tax credit has been extended and broadened.
For related graphic, see link.reuters.com/jyj63g
Buyers eligible for the tax credit must sign contracts by
April 30 and close on loans by June 30.
Whether the sales improvement can be sustained depends
largely on whether unemployment improves from its 26-1/2 year
high, most economists agree. The spike in unemployment has
forced a record number of homeowners into foreclosure, with
more than 3 million expected this year.
Another wave of foreclosed properties could hit the market
over the next year and keep home prices from extending their
recent upturn. Standard & Poor's/Case-Shiller indexes showed
average prices rising in September for the fifth straight
month, but at a slowing pace.
Prices have toppled roughly 30 percent on average from
their peak in the middle of 2006.
"We are fairly optimistic" as inventory levels have been
falling, Mulraine said. "It is true that foreclosures will add
some downside risk and will add some downward pressure to
prices, but it certainly wouldn't be to the extent that we
would have seen just a few months ago."
For rates TABLE, click on [ID:nWEQ003613]
(Editing by Chizu Nomiyama)
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