How Low Will U.S. Mortgage Rates Go?

Posted Aug 25th 2010 4:00PM by Joseph Lazzaro
Filed under: Forecasts, Housing

A frequent question voiced in dinner party circles in this neck of the woods (the metropolitan New York City area) is, 'How low will home mortgage rates go?'

That question is usually accompanied by, 'Should I refinance now, or wait?' if the inquirer already owns his/her residence.

To the latter, I usually respond with, if you can lower your fixed mortgage rate by 1.50 percentage points (150 basis points in Wall Street terms), and total closing costs can be recovered in 30 months, it usually makes sense to refinance.

On how low rates can go, at this juncture, given the slow-growth (or worse) U.S. economic expansion, it appears 30-year fixed-rate mortgages are headed even lower. Bankrate.com put the average 30-year, fixed-rate mortgage rate at 4.50% Wednesday, and it would not be a stretch to see this rate fall another one-half of one percentage point, or 50 basis points, to 4%, in six months.

Monetary Analysis: Hence, from a financing cost standpoint, now is good time to consider a 30-year, fixed-rate mortgage, if you're in the market for a home. However, if you wait, you may get an even better rate by year's end.

Still, keep in mind that another home purchase factor, home prices, is not compelling a home purchase decision right now. In fact, because home sales are falling, prices will likely remain stable or fall in many markets. Of course, selected markets will see price gains, but in general the price meter is tipped toward falling prices in the two quarters ahead.

Hence, keep your housing market's price trend in mind, before making a purchase decision. You may qualify for a low 4.50% fixed-rate mortgage now, only to realize that you could have purchased a home for a substantially lower price in six months.

Tags: home prices, housing, interest rates, inthenews, mortgages, refinance

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Reader Comments (Page 1 of 1)

8-25-2010 @ 4:21PM

Peter Van Schaik said...

And a society waiting for lower prices before they make any purchase, especially a major purchase, is the precursor of deflation. Waiting makes sense for the individual, it will probably benefit the individual, but if enough individuals wait it will be disastrous for the entire economy. You can't expand an economy and create jobs by saving for a rainy day or waiting for lower prices. The rainy days are already here and, if we aren't careful in our response, we are going to get washed away in a flood of pessimism. http://bit.ly/agIXGT

8-25-2010 @ 4:40PM

Peter Van Schaik said...

By the way, just for full disclosure: I'm still waiting a bit before I refinance my house. But if I were a younger man I would be preparing for a serious amount of borrowing to buy real estate. It WILL be a great investment again. It's just going to take awhile. http://bit.ly/agIXGT

8-25-2010 @ 7:43PM

william lindblad said...

Real estate will recover, but not anytime soon.

Those waiting for lower rates are in for a wait as rates are presently at, or near bottom. This will not change much even if the economy sinks further.

8-25-2010 @ 9:44PM

Peter Van Schaik said...

I think we can all agree that mortgage rates can't possibly fall substantially from the current rates but I'll settle for another 1/4 point or so down which I think is very possible. So let's check back in a month or two and see where they are.

By the way, way back in the very late 1970's and very early 1980's when interest rates, including mortgages, were sky high, I said we would see mortgages in the 4% range again. People thought I was crazy then so I have absolutely no problem with people, no matter how educated and smart they think they are, thinking I am crazy now. And I am a patient man which pays off in the financial world. http://sites.google.com/site/jpetervanschaik/