September 2, 2010 / 3:17 PM / 9 years ago

UPDATE 1-U.S. mortgage rates hit record low - Freddie Mac

(Adds quotes, background, details from survey)

By Julie Haviv

NEW YORK, Sept 2 (Reuters) - U.S. mortgage rates fell in the past week to the latest in a series of record lows as yields on government debt dropped, according to a survey released on Thursday by Freddie Mac, the second-largest U.S. mortgage finance company.

Rock-bottom rates offer a glimmer of hope for a housing market that has failed to find footing in the aftermath of the expiration of popular home buyer tax credits.

Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.32 percent for the week ended Sept. 2, down from the previous week’s 4.36 percent and its year-ago level of 5.08 percent, according to the survey.

Thirty-year mortgage rates have fallen to fresh lows for 10 out of the past 11 weeks. Freddie Mac started the survey in April 1971.

Meanwhile, 15-year fixed-rate mortgages averaged 3.83 percent, down from 3.86 percent last week, the lowest since Freddie Mac began surveying this loan type in 1991. Fifteen-year mortgage rates have fallen to fresh lows for eight out of the past 11 weeks.

“The 12-month price growth of core personal expenditures remained at 1.4 percent in July, which kept overall inflation expectations well at bay,” Amy Crews Cutts, Freddie Mac deputy chief economist, said in a statement.

Federal Reserve Chairman Ben Bernanke reiterated this in an Aug. 27 speech in Jackson Hole, Wyoming, saying that with inflation expectations reasonably stable and the economy growing, inflation should remain near current readings for some time before rising slowly, she said.

“As a result, mortgage rates eased further this week to new historic lows,” she said.

Mortgage rates are linked to yields on Treasuries and yields on mortgage-backed securities.

The housing market has been struggling since the April 30 expiration of popular home buyer tax credits. To take advantage of the tax credits, buyers had to sign purchase contracts by April 30. Contracts originally had to close by June 30, but that was extended by three months.

Home sales have tumbled in recent months and home prices are expected to trek downward again due to a glut of homes for sale and mounting foreclosures.

The lowest mortgage rates in decades, however, may finally be making an impact on home sales. The National Association of Realtors said on Thursday its Pending Home Sales Index for July rose 5.2 percent.

Diane Saatchi, senior vice president at Saunders & Associates in Bridgehampton, New York, said home purchase demand nevertheless remains muted.

“Low interest rates, large inventory and many eager sellers should create a positive climate for sales, yet there is still buyer resistance,” she said.

Potential home buyers may be waiting for even lower real estate prices, she said.

“As we do not know it is the bottom until we move up from it, my guess is we will not see activity until sale prices and interest rates begin to rise,” she said.

Rock-bottom rates should also continue to spur demand for home loan refinancing, putting extra cash into consumers’ hands that they can save, use to pay off existing debt or funnel into the economy through extra spending.

By lowering monthly mortgage payments, lower rates may also help some homeowners avoid default and foreclosure if their credit is good enough.

The Mortgage Bankers Association said on Wednesday U.S. mortgage applications for home purchasing and refinancing increased last week. For details double-click on [ID:nNLLVJE6EP].

Freddie Mac said rates on 5/1 ARMs, set at a fixed rate for five years and adjustable in each following year, was 3.54 percent, down from 3.56 percent last week, reaching the lowest level since Freddie Mac began tracking this loan type in 2005.

One-year adjustable-rate mortgages (ARMs) were 3.50 percent, down from 3.52 percent last week. For details double-click on [ID:nWAL2KE6IT].

A year ago, 15-year mortgages averaged 4.54 percent, the one-year ARM was 4.62 percent and the 5/1 ARM 4.59 percent.

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