U.S. mortgage rates dropped by the most in at least seven years as a Federal Reserve pledge to buy $600 billion of debt succeeded where seven cuts in the central bank’s benchmark rate had failed.
The average rate for a 30-year fixed mortgage fell to about 5.5 percent after starting at 6.38 percent yesterday, according to Bankrate Inc. It was the biggest one-day drop in at least seven years, said Holden Lewis, of the North Palm Beach, Florida, publishing and research firm.
“Home resales have hung up because rates are high and because mortgage money has been scarce,” said Neal Soss, chief economist at Credit Suisse Group in New York. The Fed’s move “may hasten the day when we finally find a bottom in housing.”
Still, stricter mortgage qualifications and growing job losses in a weakening economy will continue to hamper the market, even if the Fed plan manages to keep rates lower in coming days, said Sam Khater, senior economist for First American CoreLogic in Tysons Corner, Virginia.
“The market right now is not about rates, which are affordable, but about a supply of homes that is very high,” Khater said in an interview. “The market won’t turn around and prices won’t stabilize until supply and demand become more normal.”
Rates on U.S. 30-year mortgages posted a record drop of 1-1/8 percentage point to 4-7/8 percent on Tuesday, after the Federal Reserve said it would implement a $600 billion plan to support the mortgage securities market.
The decline on the Mortgage Point Monitor is the biggest since the data series began in 1998, according to David Beadle, president of BestInfo. The drop is also a one-day record since at least 1988 using other data, he said.
From the AP:
Rates on Fannie Mae and Freddie Mac debt fell Tuesday — a promising sign that homeowners’ mortgage rates could decline, too — after the Federal Reserve said it will buy up to $600 billion in mortgage-backed assets.
The latest action by the Fed to prop up the financial system sent the yield on Fannie’s current 30-year mortgage-backed security down 0.58 percentage point Tuesday, according to a note from Miller Tabak & Co. analyst Tony Crescenzi. He said that rate is closely correlated to mortgage rates, which have remained stubbornly high even after huge efforts by the government to loosen the tight credit markets.
Freddie Mac said last week that the average rate for 30-year mortgages was 6.04 percent, Crescenzi pointed out, which means that if the rally holds, “30-year mortgage rates could fall below this year’s low of 5.48 percent, set in January when it was at its lowest since March 2004.”