WASHINGTON – The average rate on a 15-year fixed mortgage has fallen to a record low, leading to an increase in refinancing applications. But cheaper loans are unlikely to lift the struggling housing market or boost the weak economy.
The rate on the 15-year loan, a popular refinancing option, dropped to 3.54 percent this week from 3.66 percent last week, Freddie Mac said Thursday. That's the lowest since the mortgage buyer began tracking it in 1991. Analysts say they believe it is lowest rate of all time.
The average rate on the 30-year fixed loan fell to a yearly low of 4.39 percent from 4.55 percent the previous week.
Mortgage rates tend to track the yield on the 10-year Treasury note. A weakening U.S. economy has led many investors to shift money from stocks to bonds, which are seen as safer bets. That has pushed Treasury yields to their lowest level this year. Bond yields fall as demand increases.
Low mortgage rates and depressed home prices have had little impact on home sales.
Sales of previously occupied homes fell in June for a third straight month to a seasonally adjusted 4.77 million. The pace is lagging behind the 4.91 million homes sold last year — the fewest since 1997.
New-home sales also declined in June and are trailing last year's sales, which were the worst on records dating back nearly half a century.
Many people can't take advantage of the low mortgage rates. Banks are insisting on higher credit scores and larger down payments from applicants. Others have too little equity invested in their homes to qualify for loans.
Refinance applications increased at the end of July, the Mortgage Bankers Association said Wednesday. But activity remains almost 30 percent below last year's level, the MBA said.
Mortgage rates have been near historically low levels for almost two years. Last year, the average rate on the 30-year loan fell to 4.17 percent — the lowest level in four decades. The 15-year fixed loan dropped to 3.57 percent, a previous record low.
"The pool of homeowners who can refinance just continues to shrink, either because they already refinanced or because it's hard to get credit, or in a lot of cases, because homeowners" owe more than their houses are worth, said Patrick Newport, U.S. economist with IHS Global Insight.
A higher number of refinancing applications is unlikely to have much economic impact. Many people have little or no equity in their homes. So they are not pulling money out when they refinance for home-improvement projects or other big expenditures.
Also, those who switch from 30-year loans to 15-year mortgages might face higher monthly payments, especially if they are shortening the length of their loan by a large amount.
"From a macroeconomic point of view, I don't think it's very important because the eligible pool is not that big compared to the size of the economy," Newport said.
To calculate average mortgage rates, Freddie Mac collects rates from lenders across the country on Monday through Wednesday of each week.
The average rate on a five-year adjustable-rate mortgage fell to 3.18 percent, its lowest level on records that go back to January 2005. Last week's reading of 3.25 percent also was a record low.
The average rate for one-year adjustable-rate loans rose to 3.02 percent from 2.95 percent last week. Last week's average rate matched the record low set two weeks earlier on records dating back to 1984.
The rates do not include extra fees known as points. One point is equal to 1 percent of the total loan amount.
The average fees for the 30-year and 15-year fixed loans and the 5-year adjustable loan were unchanged at 0.8 point, 0.7 point and 0.6 point, respectively. The average fee for the one-year ARM fell to 0.5 point from 0.6 point last week.