Lowest Mortgage Rates In Five Decades Could Spark Housing Boom

Chicago home buyers and families seeking to refinance now have an opportunity to lock in the lowest mortgage interest in nearly five decades.

Fueled by worldwide investor panic sparked by the spread of the coronavirus, average 30-year fixed-rate mortgages plummeted to 3.29% from 3.45%—the lowest rate ever reported in the Freddie Mac’s Primary Mortgage Market Survey, which dates back to 1971. A year ago at this time, the 30-year fixed loans averaged 4.41%.

“The average 30-year fixed-rate mortgage hit a record 3.29% on March 5th, the lowest level in its nearly 50-year history,” said Sam Khater, Freddie Mac’s Chief Economist. Fifteen-year fixed loans averaged 2.79%, down from last 2.95% a week earlier. A year ago, 15-year fixed loans averaged 3.83%.

Previously, mortgage rates reached a historical rock bottom on November 21, 2012, when the 30-year fixed mortgage average hit 3.31%, according to Freddie Mac’s archives.

On March 6th Chicago lenders were quoting an attractive range of rates from 3.125% to 3.337%, reported RateSeeker.com. Under an aggressive loan program involving pledged money-market funds, Huntington Bank, was quoting 2.45% on a seven-year balloon loan.

Meanwhile, mortgage applications increased 10% in the past week from one year ago and show no signs of slowing down.

“Given these strong indicators in rates and sales, as well as recent increases in new construction, it’s clear the housing market continues to be a positive force for the broader economy,” said Khater.

In a surprise move on March 3rd, the Federal Reserve cut its benchmark interest rate by a sizable half-percentage point in an effort to support the economy in the face of the spread of the coronavirus. The move, which the Fed’s policy committee backed unanimously, lowered the range of its benchmark rate to a range of 1% to 1.25%.

Over the past week, the Dow Jones Industrial Average went on a roller-coaster ride because of virus fears. The yield on the 10-year Treasury note fell below 1% for the first time ever. Investors around the world bid up bond prices—which move in the opposite direction of yields—as they sought safety from the stock market’s turmoil.

It was the Fed’s first move since last year, when it reduced its key short-term rate three times. It is also the first time the central bank has cut its key rate between policy meetings since the 2008 financial crisis and the largest rate cut since then.

Fed Chairman Jerome Powell said the virus “will surely weigh on economic activity both here and abroad for some time.”

At the same time, Powell sought to balance those concerns by noting that U.S. economy remained solid, with unemployment low and consumer spending solid. “The economy continues to perform well," he said. “We will get to the other side of this.”

Economists said lower rates can lead home buyers and businesses to borrow and spend, which can boost economic activity. But they can’t directly address the problems that the virus has caused—from closed factories to canceled business travel to disrupted company supply chains.

Mortgage-Rate History

More than 20 years ago—in August of 1999—when many of today’s Millennial borrowers were in grammar school, lenders were quoting 8.15% on a 30-year fixed mortgage, according to Freddie Mac.

However, to really appreciate today’s historically low interest rates, housing experts say home buyers need only to look at what banks and mortgage lenders where charging more than three decades ago in the early 1980s.

According to Freddie Mac, benchmark 30-year mortgage rates peaked at a jaw-dropping 18.45% in October of 1981 during the Great Recession of the 1980s. Rates fell below 10% in April of 1986, and then bounced in the 9%-to-10% range during the balance of the 1980s.

Archives of the now-defunct Federal Housing Finance Board show long-term mortgage rates were relatively affordable five decades ago at 5.81% to 5.94% between 1963 and 1965.

In 1966 and 1967, borrowers paid an average of 6.3% to 6.4%.

In the 1960s, rates last dipped below 6.5% in January of 1968, when the national average hit 6.41%. Between 1971 and 1977, the now-defunct Illinois Usury Law held rates in the 7.6%-to-9% range.

For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.