Mortgage Rates Lowest Since … Ever?

Mortgage rates hit, well, according to these data, the bottom. At 3.83%, these rates haven’t been seen, ever:

The Freddie Mac survey showed the 30-year, FRM averaged 3.83% for the week ending Thursday — the lowest rate ever recorded — inching down from the prior week’s record average of 3.84%. Last year at this time, the 30-year FRM averaged 4.63%. …

“Following April’s weaker than expected employment report, and the French and Greek election results raising concerns over the stability of the Euro currency zone, long-term Treasury bond yields declined allowing fixed mortgage rates to ease to new all-time record lows this week,” Freddie Chief Economist Frank Nothaft said.

Here is the data from 1963 to 2010 (data from Mortgage-X and FHFA.

The data is spotty pre-1960s, so, within “modern” times, we have reached an historic low.

Why?

When you flood the system with new money as the Fed has done since 2008 ($2 Trillion+) you are bound to have a substantial impact on interest rates as the supply of money outstrips demand. Since mortgage rates are based on the the 10 year Treasury, and with the 10-year rate at historic lows, this is no surprise. Here is a chart of the ten year Treassury rates:

With turmoil in Europe and a with many world economies stagnating, money will stay in Treasurys (our pig is still prettier than the other pigs) for quite some time, thus keep these rates low.

Will it spur the housing market? Yes, these rates are attractive. But there is still a lot of carnage. The last RealtyTrac data showed that foreclosure rates were up in more than have of the metropolitan areas they surveyed. There are still 12 million homes underwater. On a national basis, the S&P Case-Shiller housing report says that home values are still declining.

The problem is that the government is still trying to reignite the housing boom. The FHA has been giving out loans to people with a 530 FICO score and requiring only a 3.5% downpayment. These recent loans and loan refinancings of troubled borrowers have shown high rates of default. Short sales are on the rise, which may explain some of the decline in foreclosure rates recently.

I again caution readers that real estate is a local phenomenon. When we look at national aggregates, the data doesn’t tell us anything about what is happening in your town or neighborhood. Check the data before you buy. If you wish to refinance, now is not a bad time is you can qualify.