Helping sustain a nationwide housing sales boom, the benchmark U.S. mortgage rate dropped to the lowest level in nearly three decades, according to a weekly survey released Thursday.
The average rate on a 30-year fixed-rate mortgage dropped to 6.66% this week--the lowest level in the 27 years that the rates have been tracked by Freddie Mac, the nation's second-largest buyer of home mortgages.
"With interest rates so affordable, we've entered into another [refinancing] boom," said Robert Van Order, chief economist at Freddie Mac.
The low mortgage rates were an important factor in the strong performance of the Southern California housing market in August, when the median sales price for all homes jumped 10% year-over-year to $187,000, according to a separate housing report, also released Thursday.
Sales of all homes--including condominiums--in Los Angeles, Ventura, Orange, San Diego, Riverside and San Bernardino counties rose 16.7% from the same month last year to 26,026 properties, according to DataQuick, a real estate research firm.
"Prices are going up, but at a moderate pace," said Mike Ela, president of DataQuick. "With these low interest rates, most buyers are not stretching their finances thin."
In Los Angeles County, home sales rose 10.4% in August while the median sales price increased 8.1% to $187,000. Prices also moved up in the Inland Empire, where the median sales price in Riverside County rose 7.7% to $140,000. But it was San Diego County that reported the largest year-over-year gain--a whopping 14.5%--that raised the median to $198,000.
Despite August's strong results and record-low mortgage rates, Southern California's housing market is expected to cool down in coming months in response to a slower-growing regional economy, the Asian financial crisis and the turmoil on Wall Street, observers said.
The August housing report--which is based largely on sales that took place in July and June--does not fully reflect any impact that the recent sharp drop in stock market values might have had on home buyers.
"It's the big wild card. We are anxious to see how [consumers] respond," said G.U. Krueger, an economist with the California Assn. of Realtors, which is forecasting a slowdown in home price appreciation and sales next year. But so far, he said, buyers have not been scared off.
Sales activity remains high, but several Los Angeles-area real estate brokers said that home prices appeared to have leveled off in many neighborhoods after skyrocketing earlier in the year. In addition, price reductions have grown more common as buyers grow reluctant to pay lofty prices.
"The market is still solid," said broker Fred Sands, whose firm has seen sales volume rise 27% over last year.
But "buyers are not as aggressive as they were earlier in the year. There is more inventory coming on the market," Sands said.