Mortgage rates are near all-time low

Interest rates on 30-year fixed-rate mortgages fell this week to their lowest level this year and were just barely above their all-time low, Freddie Mac reported Thursday.

But demand for loans to purchase houses remains sluggish more than a month after the end of a federal program to stimulate the economy through tax credits for home buyers.

Applications for loans to buy homes has fallen by 35% over the last month, according to the Mortgage Bankers Assn., causing some to conclude that the fundamental demand for housing is just plain depressed despite signs of a reviving economy elsewhere.

Christopher Thornberg, founder of Westchester’s Beacon Economics, said the tax credit expiration at the end of April leaves little to motivate home sales anytime soon.

“The blip is that sales got so hot because of the credits,” Thornberg said, adding that demand could remain sluggish not just for months but for years.

Wiith unemployment in double digits in California and close to that level nationally, and 12 million U.S. mortgage holders owing more than their houses are worth, “It sucks the life out of demand, absent something like a tax credit,” Thornberg said.

Although something like 700,000 new households might be in the market for entry-level housing each year, demand for larger trade-up homes is dependent on people feeling confident about their earnings increasing or finding better jobs elsewhere -- both still rarities, Thornberg said.

Mark Zandi, chief economist at Moody’s, advised taking a wait and see attitude before deciding what the home purchase application data mean.

“The falloff in mortgage applications and sales is almost entirely due to the backside of the tax credit,” he said, predicting that the negative impact will continue through most of the summer.

“If sales are still weakening come September with still low mortgage rates, then my alarm bells will go off,” Zandi said.

Fixed mortgage rates are being pulled lower because they tend to track the yield on the 10-year U.S. Treasury bond, which has fallen again because of surging demand for Treasuries.

A Freddie Mac survey Thursday found 15-year fixed mortgages setting record lows for the fourth consecutive month, while 30-year fixed loan were within a hair of the lowest rates ever recorded in the survey.

The weekly Freddie Mac survey calculates what lenders are offering to people with solid credit and 20% down payments or home equity.

Freddie said the average 30-year fixed rate was at 4.72% early this week, the lowest level this year and nearly as low as the record for the survey, 4.71%, which was set last December. Early last week, the 30-year rate averaged 4.79%.

The 15-year fixed loan was at 4.17%, down from 4.2% a week before and the lowest since Freddie Mac began reporting on such loans in 1991.

The lenders surveyed said the 15-year and 30-year rates they offered would require borrowers to pay an average of 0.7% of the loan balance in upfront fees.