Fixed-Rate Mortgages Below 10% for the First Time Since January

Average interest rates on fixed-rate home mortgages nationwide dipped below 10% this week for the first time since January, but high housing prices may mute positive effects on Southern California’s real estate market.

Rates on 30-year fixed loans dropped to a nationwide average of 9.99% this week from 10.11% last week, breaking the 10% psychological barrier, according to a survey released Friday by the Federal Home Loan Mortgage Corp.

This week’s rates are the lowest since the week ending Jan. 19, when the average fixed rate was 9.9%. The drop also continues a downward drift of 30-year fixed rates since May, when they peaked at 10.67%.

The average first-year rate for adjustable-rate mortgages also fell this week, to 8.39% from 8.45%, matching a low also not seen since in January.

While California rates remain slightly higher, the declines could bring brisker housing sales to a market 10% to 15% slower in volume than last year, housing analysts said. But high housing prices could offset the positive effects of lower rates, they said.

“Ten percent tends to be a psychological barrier as far as interest rates go,” said Leslie Appleton-Young, vice president of research and economics for the California Assn. of Realtors. “What we’ve seen in the past is that it really does boost the market quite a bit. I would temper that, however, by saying the current real estate conditions are not attributable to interest rate problems.”

Because 30-year fixed rates this year have hovered near 10%, this week’s drop may bring less of an impact than previous drops into single-digit territory, said Keith Gumbinger, a spokesman with HSH Associates, a New Jersey-based financial surveyor and publisher.

“The psychological barrier of 10% doesn’t mean as much as it used to,” he said. “Most consumers are savvy enough to realize the difference between 10% and 9.9% means a handful of pennies or a couple of dollars in a monthly payment.”

However, Freddie Mac chief economist Robert Van Order predicted that interest rates could continue declining if the economy remains sluggish, further stimulating housing sales.

“Every time it falls, it means some people can afford a house who couldn’t otherwise,” he said.

Joe Wahed, chief economist at Wells Fargo in San Francisco, predicts that rates will bottom out between 9.25% and 9.5%, bringing Southern California a brighter real estate market.

“I predict that housing markets are going to improve as we approach 1991,” he said. “In fact, even before that we are going to see hints of improved sales and activity in Southern California.”

Wahed estimated that developers will build 200,000 new homes in California this year, down 15% from 1989. Sales of existing homes will reach 482,000 this year, an 11% drop from the 539,000 sold last year, he predicted.