Mortgage Rates Near Record Lows

Mortgage rates have fallen sharply to near record lows set last year, mortgage finance giant Freddie Mac said Thursday, a drop that is expected to drive another round of home loan refinancings and keep the housing sales market popping.

Freddie Mac said 30-year mortgage rates averaged 5.41% in the latest week, down from 5.59% a week earlier and the lowest since they averaged 5.4% in the week of July 4.

The announcement caught some Southern California lenders by surprise.

Before long-term bond yields began tumbling late last week on disappointing economic news, many analysts were expecting interest rates -- including rates on home loans -- to climb this year, putting a drag on lending activity.

“We were bracing for a real slowdown in 2004,” said Maynard Maceda, a home mortgage consultant with Wells Fargo & Co. in Montrose. “We laid off a lot of support people.”

Homeowners who refinanced at higher rates not long ago have called to discuss new loans as rates ticked downward during the last few weeks, said Maceda. Many of them have seen their property values go up and want to take out some equity or consolidate loans.

“For people with loans at 6% or higher, it’s a good time to take advantage” of lower rates, Maceda said.

Pasadena-based Internet mortgage specialist IndyMac Bancorp is going to add staff to meet the growing demand, said Executive Vice President Frank Sillman. IndyMac is writing a growing number of adjustable-rate mortgages, he said.

Variable-rate loans “are very popular in California and kept us quite busy even as interest rates started to go up,” Sillman said.

Interest rates for 30-year fixed-rate mortgages are approaching last year’s record low, and some analysts now expect that trend to last for a while.

“For the year as a whole, we expect long-term rates may be even lower annually than they were in 2003,” said Frank Nothaft, Freddie Mac chief economist. “The economy is clearly much weaker than we had anticipated.”

Fifteen-year mortgage rates, meanwhile, fell sharply from 4.88% to an average of 4.69%, their lowest since the week of June 27, when they averaged 4.63%.

One-year adjustable-rate mortgages slipped to an average of 3.41% from 3.47% last week -- the lowest since Freddie Mac started keeping records in 1984.

Federal Reserve Chairman Alan Greenspan said Thursday that adjustable-rate mortgages “were a valuable addition, but 30-year mortgages are a crucially important issue in this country which has enhanced home building.”

Last year’s record home sales were generated by eager buyers who sought to take advantage of low interest rates.

According to the Freddie Mac outlook released this week, the Fed may maintain low rates at 1% through the end of the year.

In their monthly outlooks, both Freddie Mac and Fannie Mae economists predicted that 2004 home sales would beat last year’s records.