Mortgage rates today, for the first time, fell below 4 percent for a conventional 30-year,

fixed-rate loan.

But even with the national average rate of 3.94 percent, it probably will not
create a frenzy of home buying and refinancing, said local experts, reacting to
the Freddie Mac mortgage-market survey.
Freddie Mac also reported the the average 15-year fixed-rate mortgage fell to a historic low of 3.26 percent, while 5-year ARMS and 1-year ARMs, averaged 2.96 percent and 2.95 percent, respectively.
Rates hit historic lows following a “sharp drop in 10 -year Treasuries…as
concerns over a global recession grew,” said Frank Nothaft, vice president and
chief economist, Freddie Mac.
“In a typical market, I would say, absolutely, yes, this would convince a
huge number of people to refinance or buy, but not in today’s market,” said
economist Patty Silverstein, principal of Development Research Partners in
Littleton.
“Rates aren’t the issue,” added Silverstein, who also is the consulting chief
economist for the Metro Denver Economic Development Corp. and the Denver Metro
Chamber of Commerce.  “There is still too much of a fear-factor out there, if
you will. And that becomes a self-fulfilling prophecy to a certain extent.
Consumers need to regain their confidence before they feel comfortable buying a
big-ticket item like a home.”
However, if someone qualifies for a super-low mortgage rate – typically
reserved  the most credit-worthy borrowers, who need equity in their homes to
refinance –  savings can be substantial.
Dumping a 5.5% loan
For example, the principal and interest on a 30-year, fixed rate at 3.94
percent for a $275,000 mortgage is $1,303, $258 a month lower than the $1,561
for someone with a 5.5 percent mortgage.
That means someone who refinanced even a few months ago might consider
refinancing again at these new rates.
“I really believe that this is an unique time in our history,” Pete Lansing,
president of Universal Lending, said late last week, before rates fell to the
new lows announced today.
“At these interest rates, it is going to be an unprecedented time to
refinance or purchase a home,” Lansing added. “If someone in any way thinking of
buying a home, it might be a good idea. Why wouldn’t you? Not only are mortgage
rates at never-seen before rates, but home prices are at affordable levels.”
Low rates make housing a good long-term bet
He said even if home values dropped a bit, it would be worth it to lock-in
today’s rates, if you planned to stay in your home long enough to see it rise in
value.
However, Lansing said that anyone considering refinancing has to make sure
they will stay in their home long enough to recoup the expense. Since the cost
of refinancing a mortgage typically comes from quity of a home, the borrower has
to make sure a refinance makes sense for them, he said.
Shannon Peer, of Brothers Redevelopment, said some homeowners may be
reluctant to refinance, even if the numbers pencil out.
“Let’s say you received a 6.5 percent interest rate seven years ago,” Peer
said. “You’ve paid $40,000 or $50,000 in interest on your loan. Some people may
not want to go back to a 30-year loan. I think the goal of a lot of people is to
eventually pay off their mortgage to realize the value of their investment.”
On the other hand, he said some people may find any monthly savings enticing
and will want to take advantage of anything that puts money back into their
pockets. “Some people may even want to save $50 a month, even if they calculated
the real cost, it may not be in their best interest,” he said. But Peer
cautioned that people considering refinancing should weigh the economics and
consider what their long-term and short-term goals are as a homeowner.
Jim Lewis, of America’s Mortgage, said he hopes people will take advantage of
the incredibly low rates, but is not certain that will happen.
“They really are pretty amazing. The question is, where do we go from here?
The Fed has said they want to keep long-term rates low for the foreseeable
future, and they are doing that,” Lewis said.
Jobs key
However, jobs still trump mortgage rates, no matter how low they fall, he
said.
“Everybody from President Obama on down talks about the need to create good, high-paying jobs, but it doesn’t seem to be happening,” Lewis said. “Until people are more economically comfortable, they are not willing to take on more debt. I’m hopeful that people will start to take advantage of these sub-4 (percent) loans to buy new and existing homes and refinance, but I think a lot of people are going to be sitting tight until the job market improves.”
Housing consultant S. Robert August, however, said he thinks the record-low
rates provides an opportunity for home builders to court renters to buy their
start-up homes.
“With rates this low, it makes more sense to own than to rent,” August said.
“The low rates won’t have an immediate impact, but it will start to happen as
people’s leases expire in the next three to four months.”
August also said he expects that some builders might be willing to pick up
the cost of two or three months of rent for buyers. Also, because the rental
market is so strong, some landlords will allow existing tenants so sub-lease
their apartments for a few months, he said.
August said that every time a rate falls below a whole number, no matter how
incremental of a drop, it provides a bit of a psychological incentive to buy a
home.
“The catch is, I don’t think most people realize how low rates are,” August
said. “Part of that is the education process. We need to get the word out
regarding these rates.”
Meanwhile, a flurry of refinancing may not pump as much money into the
economy as it has in past years, as people may be reluctant to go on a buying
spree, economist Silverstein said. Instead, they may use the savings to pay down
existing debt or put away more for retirement, which is good for the economy
long-term, but doesn’t provide a huge catalyst to the economy like using the
money to buy flat-sceen TVs or new cars would.
Still, even if homeowners are conservative with money they save from
refinancing, it boosts the economy, she said.
“If households use their extra cash to pay down debt, save for a rainy day,
or save for retirement, this behavior would not have immediate impacts on the
local economy,” Silverstein said. “However, from a macro-level, that money that
is received by the credit companies, or banks, or investment brokers represents
income for them that may be turned into additional spending by them. Or, the
banks may then be able to loan more money to businesses. So, ultimately, the
overall economy will benefit from the “freeing up” of those extra dollars. the
distinction is how far into the process you need to reach before you start to
see the impacts.”