CHICAGO (MarketWatch) -- The benchmark 30-year mortgage fell below 5% for the first time ever in Freddie Mac's weekly rate survey as economic weakness continued to push interest rates lower, the mortgage agency said Thursday.
The national average rate on the 30-year loan fell to 4.96% in the week ending Jan. 15, down from 5.01% a week ago. That is the lowest on record. Freddie Mac began its rate survey in 1971. A year ago the loan averaged 5.69%.
Adjustable-rate loans also fell. The 5-year, Treasury-indexed hybrid mortgage averaged 5.25%, down from 5.49%. A year ago the loan stood at 5.40% and has not been this low since September 2005. The 1-year, Treasury-indexed ARM averaged 4.89%, down from 4.95%. A year ago that loan was at 5.26%.
The two fixed-rate loans required the payment of an average 0.7 point to achieve the interest rate; the hybrid needed 0.6 point and the ARM 0.5 point. A point is one percent of the loan amount, charged a prepaid interest.
"Interest rates for 30-year fixed rate mortgages fell for the 11th straight week to another record low, due in part to the slowing economy and government actions," said Frank Nothaft, Freddie Mac chief economist.
"Both the U.S. Treasury Department and the Federal Reserve have added over $100 billion in liquidity to the mortgage market since September 2008, which put downward pressure on interest rates for fixed-rate mortgages. The Federal Reserve may add up to an additional $570 billion more this year, based on its November 25, 2008 announcement, to further shore up mortgage lending and keep rates low."
"In December, the unemployment rate rose to 7.2 percent, the highest since January 1993, and the economy lost 2.6 million jobs over 2008, the largest annual drop since 1945. That brought down yields on Treasury securities and mortgage rates followed," Nothaft said.
Staying low
Mortgage rates could remain low at least until the summer, said Greg McBride, senior financial analyst for Bankrate.com.
"The outlook is very positive that these low mortgage rates will likely persist at least through the first half of the year. That is the timetable laid out from the Federal Reserve for pumping up to $500 billion in mortgage-backed bonds," McBride said.
Although refinance applications are skyrocketing, many people won't be able to take advantage of the low rates because of their home equity situation, said Jim Sahnger, vice president of Palm Beach Financial Network. Some homeowners are underwater, owing more than their home is worth.
Sahnger said that the majority of his Florida-based clients interested in refinancing aren't able to, unless they're able to refinance into a loan backed by the Federal Housing Administration. Part of that is due to local market conditions. Dan Green, loan officer with Mobium Mortgage in Cincinnati, said his clients -- mainly based in Cincinnati and Chicago -- aren't having as much trouble refinancing.
If rates remain low, it could entice more home buyers into the market, McBride added. "There's a lot more affordability for prospective home buyers than there was six or 12 months ago," McBride said.
Sahnger said that already some buyers are jumping in. "Many of the buyer's agents I work with haven't been this busy in months," he said.
Not so fast
While conforming mortgage rates are low, the fees associated with getting those loans are on the rise, Green said.
"If you don't mind paying a point, your interest rates have fallen dramatically. For no closing cost loans, interest rates are almost a point higher than the survey," Green said.
Also keep in mind that the Freddie Mac survey covers average rates over the past week. Rates are now up from the levels cited in the survey, Sahnger said.
And those who need jumbo mortgages aren't seeing the same kind of relief as those applying for conforming mortgages. The average jumbo 30-year fixed-rate mortgage was 7.07% this week, according to Bankrate.com's national weekly mortgage survey, conducted on Wednesday using data from the top 10 banks and thrifts in the top 10 markets.
Because the top conforming loan limit actually declined in 2009 from 2008 in high-cost markets (to $625,500 from $729,750), "there are a lot more people who are going to have to borrow at a higher rate today than a couple of months ago," McBride said.
Steve Kerch is assistant managing editor and personal finance editor of MarketWatch in Chicago.
Amy Hoak is a MarketWatch reporter based in Chicago.