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| Extra! | Mortgage rates touch 6-month low
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Dip could be 2004's best opportunity for buyers; most economists see costlier loans ahead in year's second half.
By Holden Lewis, Bankrate.com
Mortgage rates dipped slightly this week to rates not seen since July 2003 -- and that probably won't be seen again after July 2004.
The benchmark 30-year fixed-rate mortgage fell to 5.67%, according to the Bankrate.com national survey of large lenders. Freddie Mac, the nation's second-largest mortgage lender, put the benchmark rate at 5.64%, also a six-month low.
A year ago, the Bankrate.com index stood at 5.96%, the Freddie Mac survey at 5.91%.
Rates on 15-year fixed-rate and one-year adjustable-rate mortgages also reached six-month lows, the surveys found.
But can rates stay low?
How long will rates stay this low? For quite a while, say housing economists. In a conference call, economists for housing associations made their predictions about mortgage rates. The consensus is that rates will rise this year, but not by much.
| Banrate.com weekly mortgage survey |
| 30-yr. fixed | 15-yr. fixed | 1-yr. ARM | | 30-yr. fixed | 15-yr. fixed | 1-yr. ARM | | | This week's rate | 5.67% | 4.99% | 3.68% | Monthly payment | $954.53 | $1,303.95 | $757.60 | | | Change from last week | -0.01% | -0.02% | -0.02% | Change from last week | ($1.04) | ($1.72) | ($1.87) | |
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Survey of national rates on Jan. 21 and effect on $165,000 loan
David Seiders, chief economist for the National Association of Home Builders, predicts that the 30-year, fixed-rate mortgage will average 6.4% at the end of 2004, with most of the increase happening in the second half of the year, after the Federal Reserve hints that short-term rates will have to go up eventually.
Dave Berson, chief economist for Fannie Mae, predicts that rates will rise to somewhere between 6.25% and 6.625% at the end of the year. Paul Merski, chief economist for the Independent Community Bankers of America, won't predict where he thinks rates will go other than to say that he doesn't think they will rise much. If they do, borrowers simply will turn to adjustable-rate mortgages, which offer lower initial rates, he says.
Homebuying resources on MSN Money
David Lereah, chief economist for the National Association of Realtors, predicts "only modest increases in mortgage rates," although he doesn't forecast a firm number. He says there is a slight risk that rates will rise further than most economists are predicting if the federal budget deficit, financed through borrowing, "crowds out private borrowings," and if the trade deficit forces interest rates higher as Americans borrow to consume more than they produce. Lereah calls the budget and trade deficits the "twin towers" of economic risk.
Frank Nothaft, chief economist for Freddie Mac, predicts an optimistic scenario in which mortgage rates rise to about 6.25% at the end of 2004. "With family incomes rising, mortgage rates low, that translates into a superb housing market once again this year," Nothaft says.
Home buyers flocking to lenders
That seems to be the case so far this year. The Mortgage Bankers Association's purchase index -- a measure of the number of purchase loans that people apply for -- reached a record high for the week ending Jan. 16. The MBA credited low interest rates.
New home construction in December rose 1.7% from the previous month and 15% from the previous December. Housing starts reached their highest level since February 1984, interim housing secretary Alphonso Jackson says.
2003 was the best year for new construction since 1978, with ground broken on 1.85 million new homes.
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