U.S. mortgage rates declined to record lows as the Federal Reserve pushed down borrowing costs by resuming purchases of mortgage-backed securities.
The average rate for a 30-year fixed loan fell to 3.4 percent in the week ended today from 3.49 percent, McLean, Virginia-based Freddie Mac said in a statement. It was the lowest in data going back to 1971. The average 15-year rate dropped to 2.73 percent, also a record, from 2.77 percent.
The housing market has been showing signs of recovering as low interest rates draw in buyers who are competing for a limited supply of homes. Rates declined after the Fed’s Sept. 13 announcement that it would buy $40 billion of securities per month as part of measures to stimulate the economy.
“We’ve already seen low mortgage rates even before the Fed action,” said Anika Khan, a senior economist with Wells Fargo & Co. in Charlotte, North Carolina. “We’ll continue to see mortgage rates come down. That means affordability will continue to be high.”
Demand for homes remains choppy, with contracts to buy previously owned properties falling 2.6 percent in August after a revised 2.6 percent gain in July that was more than initially reported, the National Association of Realtors said today.
Purchases of new U.S. homes fell 0.3 percent to a 373,000 annual pace in August, following a revised 374,000 rate in July that was the strongest since April 2010, figures from the Commerce Department showed yesterday. Home prices in 20 U.S. cities climbed more than forecast in July from a year earlier, according to an S&P/Case-Shiller report.
While borrowing costs are falling, they could be even lower. Since the Fed’s announcement, the rates offered for new 30-year loans have fallen by 0.19 percentage point, compared with a drop of about 0.6 percentage point for yields on the bonds into which the loans get packaged, according to data compiled by Bloomberg and Bankrate.com.
The gap between the two, which typically signals increasing lender revenue when it widens, reached a record of more than 1.7 percentage point yesterday.
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