The average 30-year fixed mortgage rate fell to 5.19% this week, down from 5.29% in the week prior, according to Bankrate.com's weekly national survey.
The previous low was 5.28%, hit this January and in June 2003; the last time rates dipped lower than 5.19% was in 1956, according to Bankrate.com.
To put the plunge in mortgage rates into perspective, 30-year fixed home mortgage rates averaged 6.77% in late October. At that time, a $200,000 home loan would have meant a monthly payment of $1,299.86. Now, with the mortgage rates down at 5.19%, the monthly payment for the same loan would be $1,096.99. That works out to a savings of more than $200 per month.
0:00/5:35Housing's upside surpriseMeanwhile, the average 15-year fixed mortgage rate fell to 4.80% from 4.86% in the the prior week. The 15-year fixed mortgage rate carried an average of 0.49 points.
The government announced last week that it would be buying more than $1 trillion in debt in order to increase liquidity and improve credit conditions. With the key lending rate already at a range of 0% to 0.25%, the Federal Open Market Committee - the policymaking committee of the Fed that sets interest rates - turned to less traditional means to encourage lending.
The Federal Reserve said that it would buy an additional $750 billion in mortgage-backed securities and $300 billion of long-term Treasurys. The so called "quantitative easing" policy essentially increases the money supply and is designed to push interest rates down, making borrowing cheaper.
0:00/02:30Fed's trillion dollar gambleNot much further to drop: Analysts say that while mortgage rates could edge a smidgen lower, they won't make any more dramatic plunges.
"At this point, what we are going to see is mortgage rates fluctuate at these levels," said Brian Bethune, chief financial analyst at IHS Global Insight. "I don't see them dropping significantly from where they are now."
Mortgage rates move in relation to the yield on the 10-year government bond. While there is not a direct correlation, they do move in the same direction. Bethune said that there are two factors that will prevent Treasury yields, and by extension mortgage rates, from dropping much further.
"One is the huge Treasury borrowing requirements," he said. As the government looks to fund its massive stimulus spending programs, it has had to issue a record amount of debt. The increased supply keeps a lid on the price of bonds and stabilizes yields.
"In addition, as we get closer to perceptions of a trough in the economy, the yields will tend to see upward pressure," said Bethune. Uncle Sam's debt is considered one of the safest places for investors to keep their cash. During times of market uncertainty, demand surges, the prices increase, and yields fall. But as market sentiment begins to believe the economy could be headed for recovery, demand for Treasurys will lessen, lifting yields.
Surge in refinance: The dramatic drop in mortgage rates has motivated home owners to refinance in great numbers, but the drop in mortgage rates has not spurred as large an increase in new home purchases, said Mike Larson, real estate analyst at Weiss Research.
"We are still not seeing a huge impact on home buying," he said. "All else being equal, it will help the market," said Larson. "But it is not the huge impact you are seeing on the refinance side."
Bankrate.com compiles national averages every Wednesday by surveying the top 10 banks and thrifts in the top 10 housing markets. For historical data, Bankrate.com cites the National Bureau of Economic Research.
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