Mortgage Rates Retreat

Mortgage rates have fallen again to historic lows. If you have good credit, you can get a 30-year fixed rate mortgage for 4.8 percent. And lots of people are rushing in to refinance. The swoon in rates is unexpected, especially after the Federal Reserve stopped buying mortgage debt a few weeks ago. But when the euro faltered, investors sought safety in the U.S. Treasury bonds that influence mortgage rates.

Copyright © 2010 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

MELISSA BLOCK, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

The economic turmoil in Greece and across Europe has caused considerable jitters among U.S. investors. But for the moment, it's also created a nice fringe benefit for American homeowners and would-be homebuyers. Mortgage rates here have been falling, once again below 5 percent on a 30-year fixed rate loan that matches their lowest level in 50 years.

NPR's Chris Arnold reports.

CHRIS ARNOLD: For the past couple of weeks, the world has watched what could be a fresh financial crisis brewing in Europe. Protestors in Greece clashed with riot police. They're hitting their plastic police shields with rocks and sticks.

(Soundbite of rocks and sticks)

ARNOLD: But what does all that have to do with mortgage rates for houses in the U.S.? Well, what's been happening is that frightened investors have been pulling their money out of Europe and they need a safe place to invest it.

Chris Mayer is a housing economist at Columbia Business School.

Professor CHRIS MAYER (Real Estate, Columbia Business School): The immediate silver lining of the problems in Europe has been another rush to safety in the credit markets. And when push comes to shove, the U.S. Treasury is still the security of choice for people who are looking for safety.

ARNOLD: Mayer says a lot of investors are buying up U.S. Treasury bonds. When that happens, that pushes down the rate of return on the bonds and mortgage rates usually follow them downward. Also, Mayer says the U.S. government is guaranteeing upwards of 95 percent of new mortgages. And so, like Treasuries...

Prof. MAYER: U.S. mortgage-backed securities that are guaranteed by the government look pretty safe compared to some of the other alternatives.

ARNOLD: Basically, that means there's plenty of money available at cheap interest rates to loan out to U.S. homeowners who can qualify.

Ms. AMY TIERCE (Regional Manager, Fairway Independent Mortgage): This is our operations team and this is the office I want to sell.

ARNOLD: Amy Tierce runs Fairway Independent Mortgage outside Boston. With rates low, Tierce is busy and hiring again, which is definitely a change from a couple of years ago.

Ms. TIERCE: In November of '08, I was wondering if we were just going to have to shut down.

ARNOLD: But the homebuyer tax credits and ongoing government efforts to keep interest rates low have kept this industry alive, and it's getting another boost right now with these rates below 5 percent.

Ms. TIERCE: I mean, I'm saving people three to $400 a month. Talk about economic stimulus.

ARNOLD: Down the hall, employee Amy Slotnick has been refinancing a steady stream of customers too. But actually, she says a lot of homeowners have already refinanced over the past year or so. So she says those people are waiting to see if rates go even lower.

Ms. AMY SLOTNICK (Mortgage Planning Specialist, Fairway Independent Mortgage): If rates drop another quarter of a percent or so, I think we'll get crazy again. And I think...

Ms. TIERCE: Crazy.

Ms. SLOTNICK: Yeah, really crazy. Because then everybody can do it again.

ARNOLD: And if rates don't go even lower, Amy Tierce says she's encouraging people who've tried to refinance and couldn't qualify for a good rate to try again. For one thing, she says home appraisers who were being overly cautious are now coming in with more realistic house values so it might be easier to qualify for a mortgage.

There's another thing, too, that could help the housing market - and something you might not expect: the shaky stock market.

Guy Cecala is the publisher of the Inside Mortgage Finance. He says when stocks are doing poorly...

Mr. GUY CECALA (CEO/Publisher, Inside Mortgage Finance): People start pulling out of their money out of the stock market; invest it back in housing again. That may sound farfetched, but it's not. In a lot of markets, people feel home prices have bottomed out, and it's not a bad time to start reinvesting in a small condo or other types of properties that you can rent out right now and have a lot of upside.

ARNOLD: But prices may not have bottomed out. The closely watched Case-Shiller Home Price Index came out this week, and it shows that prices in many cities are starting to head a bit lower again.

And economist Chris Mayer says in the end, another banking crisis - even if it emerges in Europe across the ocean - it will still cause problems for U.S. companies looking for credit.

Prof. MAYER: I don't think this is really longer-term good news for the housing market. This is going to put real pressure on the U.S. economic recovery. That's why U.S. markets are down so much.

ARNOLD: That said, if you can qualify for a really low interest rate right now, that could save you thousands of dollars a year for many years to come.

Chris Arnold, NPR News.

Copyright © 2010 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.