The Federal Reserve's move to buy Treasury securities has caused long-term mortgage rates to hit record lows, according to Freddie Mac's weekly survey.
For the week ending March 26, 30-year fixed-rate mortgages (FRMs) averaged 4.85% – the lowest average since the survey began tracking 30-year FRMs in 1971. The 15-year FRM averaged 4.58%, and five-year, Treasury-indexed adjustable-rate mortgages averaged 4.96% – each the lowest on record.
‘The Federal Reserve's announcement that it intends to purchase Treasury securities over the next six months caused bond yields to drop, and mortgage rates followed," says Frank Nothaft, Freddie Mac's vice president and chief economist. "Rates for 30-year FRMs peaked last year at 6.63 percent on July 24. With this week's 30-year FRM, the interest-rate difference is almost two percentage points, which amounts to a savings of about $225 in monthly mortgage payments for a $200,000 loan."
The historically low rates have not gone unnoticed by home buyers. Mortgage applications have rose consecutively in March, Nothaft notes. The trade organization last week increased its forecast of mortgage originations for the year and now expects originations to total $2.78 trillion.
Another sign the tide might be turning came in the form of the National Association of Realtors' (NAR) announcement last week that existing-home sales rose 5.1% in February. First-time home buyers accounted for half of all existing-home sales, according to the NAR.
Analysts from Bank of America Corp.'s securities division say the low interest rates and less-stringent financing standards at the government-sponsored enterprises may help launch origination totals to more than $3 trillion, according to a Bloomberg report.
A research note from the company says that demand is up, but the mortgage industry still faces capacity constraints – specifically, a smaller workforce and fewer warehouse lines of credit for non-bank lenders. Larger loan balances and more efficient loan origination software will help balance out the capacity problems, says Ohmsatya Ravi, who, along with Craig Perkins, led the mortgage-bond strategists who wrote the research note.
SOURCES: Freddie Mac, Bloomberg