Mortgage rates fall to near-record lows

30- and 15-year figures drop sharply this week

March 12, 2004|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

Interest rates on 30-year home mortgages fell sharply to near-record lows this week, a development likely to give the long housing boom renewed energy while offering procrastinators who missed last year's record pace of refinancings another chance to cut their mortgage costs.

The average rate on a 30-year-fixed mortgage dropped to 5.41 percent, down from 5.59 percent a week ago, according to Freddie Mac's weekly national survey released yesterday.

The last time 30-year rates were as low was the first week of July, the mortgage giant said.

The new rate also isn't far from the 5.21 percent reported in mid-June, the lowest rate in 45 years.

"It's unbelievable that they're this low again. It's amazing," said Charles DiPino Jr., vice president of Universal Trust Mortgage Corporation in Pikesville, which has seen an increase in business in recent weeks.

"The phones have just been ringing off the hook again," DiPino said. "People are starting to get excited about the rates being low again."

Many experts had been anticipating a rise in mortgage rates at this point in the economic recovery. But last week's employment report delayed an uptick.

The unemployment rate for February remained unchanged at 5.6 percent from the month before, and only 21,000 jobs were created.

As a result, there's no inflationary pressure in the economy, and no reason for the Fed to adjust its monetary policy, said Frank Nothaft, Freddie Mac's chief economist.

Effect of Dow slide

This week's sharp decline in stock market prices is likely to help hold rates low in coming weeks. The Dow Jones Industrial Average closed at 10,128.38 yesterday, down 168.51 on the day and at a record low for the year.

The Dow has dropped 467 points this week.

"The Fed has really no incentive to push short-term interest rates any higher," Nothaft said. "We're probably in for having low interest rates well into the spring."

Rates on other types of mortgages also fell this week. The average fixed rate for a 15-year mortgage is 4.69 percent, down from 4.88 percent last week.

One-year adjustable-rate mortgages averaged 3.41 percent, a drop from 3.47 percent a week ago.

The new rate is the lowest one-year ARM since Freddie Mac started tracking the figure in January 1984.

Experts predict that continued low rates will spur refinancings and home purchases while bolstering home prices.

Keith Gumbinger, vice president of HSH Associates, a mortgage information provider in New Jersey, calls the drop in rates a "procrastinator's reward," or a second chance for those who failed to refinance last year when a record number of homeowners did so.

Change in direction

One of those getting a second chance is Eric Brotman. The Timonium financial planner launched his own business last year, but he couldn't refinance his 6.75 percent mortgage back then because the company's start-up costs made it look like he had no income, he said.

He is refinancing his mortgage, and the rate on his new 5-year adjustable-rate loan will be less than 4.25 percent. That will save him about $280 a month, he said.

"I think it's an anomaly," Brotman said of the low rates. "I don't think it can happen again, certainly not for this extended period.

"Interest rates can only go in one direction from here," he added. "The question is how soon and how rapidly."

Other homeowners apparently are feeling the same. Refinancings have picked up this year, and make up 50 percent to 60 percent of mortgage applications, according to Freddie Mac.

Joseph Child, president of the Maryland Association of Mortgage Brokers and director of the Maryland Group at First Republic Mortgage Corp. in Annapolis, said he has seen homeowners refinance mortgages that are only three or four months old.

Second homes

Another trend this spring is that more consumers are taking advantage of low rates to buy second homes, Child said.

They might have a little time to shop because experts don't expect a rapid rise in rates.

Gumbinger said rates for 30-year mortgages have ranged from 5.3 percent to 6.5 percent since last summer. He predicts rates will remain within that range for the remainder of this year.

Even then, he added, mortgages won't hit the high end of the range until job growth exceeds expectations for several months, inflationary pressures build and the Fed steps in.

Still, this week's low rates might not hang around for long before creeping up slightly, he added. "If this is the number that you've been waiting for, go get it," Gumbinger said.

While they last, low rates are expected to boost home sales.

Freddie Mac's Nothaft said that the sales of existing and newly built houses this year are expected to reach 7.3 million nationwide, outpacing the record set last year by 100,000 homes.

Hot market

Housing prices, too, are expected to go up 7 percent to 8 percent on average, although actual increases will depend on location, Nothaft said.

Low mortgage rates make it easier for many home buyers to shoulder payments even with rising prices, he said.

Low rates "will keep the market hot," agreed Gilbert Marsiglia, president of the Maryland Association of Realtors and president of a real estate company in Lutherville.

"For the rest of this year, we have a big demand and we don't have the supply out there. We think housing prices will continue to go up at a pace similar to '02 and '03," he said.

Last year, housing prices in Maryland went up an average of 12.75 percent. In Baltimore and its five surrounding counties, sale prices rose an average of 15.34 percent to $211,636.

Rising house prices are good for those who own homes, Marsiglia added.

"It's bad for those who don't own homes. For people who don't own a home, getting into a home is getting more difficult," he said. "Even with the low rates ... housing prices are escalating faster than income."

Sun staff writer Tracy Swartz contributed to this article.

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