WASHINGTON -- Mortgage rates have reached their lowest levels in six decades, making this the best time in most Americans’ lives to buy or refinance a home. For people who qualify, today’s rates could save thousands of dollars a year.
Yet most people can’t take advantage. Half of would-be buyers say they’ll never save enough for the 20 percent down payment now usually required. And shrunken home values have erased much of the equity people need to refinance.
“Low rates are great, but the real issue is that the pool of people who can get a loan or refinance is small,” said Greg McBride, Bankrate.com’s senior financial analyst.
This week, the average rate on a 30-year fixed mortgage fell to 4.12 percent. It’s the lowest for a 30-year fixed loan since mortgage buyer Freddie Mac began tracking rates in 1971. The last time rates were cheaper was in 1951, when most long-term home loans lasted just 20 or 25 years.
The average on the 15-year fixed loan, a popular refinancing option, dropped to 3.33 percent this week. That’s also an all-time low, according to most economists.
Whether the record-low rates will stimulate the local housing market which has been devastated by the poor economy depends on whom you ask.
Developer Pat Neal, who is having a record year selling new homes to first-time home buyers, says absolutely yes.
Larry Chatt, co-owner for Island Real Estate, says not so much since Anna Maria home buys are often cash transactions and with wealthy buyers.
Neal said 60 percent of Neal Communities’ sales are first-time homebuyers who are taking advantage of the low mortgage rates to get into a home.
“Since we retooled the company in 2007 and built smaller, less expensive homes, we have been doing great,” he said.
The company’s new homes range from $110,990 to $1.4 million with 80 percent of sales in the $130,000 to $300,000 price range.
“If you have a 620 FICO score and a job, you can move into a new home,” he enthused.
Neal said the company’s sales goal is 397 homes by the end of the year. “We are slightly behind but we’ll catch up. This will help us.”
Since island home sales are mainly second home buys with upper income buyers, Chatt said the low mortgage rates may help some but the biggest boost would come from a change in the limits for jumbo loans.
Starting Oct. 1, Fannie Mae and Freddie Mac will cut the size of loans they buy from lenders. That will force many future borrowers into more expensive and harder-to-get jumbo loans, according to news reports.
The limits, usually $417,000 for single-family homes, were raised in 2008 in some high-cost housing markets to stimulate the economy. In many areas, the limits rose to $729,750 and next month they’ll fall to $625,500.
“When the mortgage goes into a jumbo, the interest rate goes up significantly, usually 1 percentage point,” Chatt said.
Record-low rates have done little to energize depressed home sales nationwide. The average rate on the 30-year fixed loan has been below 5 percent for all but two weeks this year.
Yet sales of previously occupied homes are on pace for their weakest year since 1997.
Too many would-be buyers can’t come up with a down payment, don’t have a job, lack enough income or are burdened by large debt loads.
Mortgage rates are low largely because investors are worried about the U.S. economy.
As a result, they’re moving their money out of stocks and into U.S. Treasurys. Mortgage rates tend to track the yield on the 10-year Treasury note, which touched an all-time low this week.
A drop in mortgage rates could provide some help to the economy if more people could refinance. When people refinance at lower rates, they pay less interest on their loans and have more money to spend.
Consider a homeowner who owes $250,000 and is paying 5.09 percent on a 30-year fixed mortgage.
That was the average rate on a 30-year fixed loan being offered in January 2010. Refinancing the loan at 4.12 percent could save him or her roughly $2,000 a year.
But many homeowners with good jobs and stable finances have already refinanced in the past year.
The average rate on the 30-year fixed loan fell to 4.17 percent last November, and to 4.15 percent last month. Both were previous lows.
-- Business editor Jennifer Rich contributed to this report.