30-Year Mortgages Hit Record Low

The average interest rate on a 30-year, fixed-rate mortgage fell below 5 percent this week for the first time on record as a government program to buy mortgage-backed bonds reduced borrowing costs.

That rate dropped to 4.96 percent from 5.01 percent a week earlier, McLean-based Freddie Mac said Thursday. That's the lowest rate recorded in data that date to 1971, according to Freddie Mac. It was the 11th week in a row that rates have fallen and the fifth consecutive record low.

The Federal Reserve started buying $500 billion of mortgage-backed securities last week to boost prices for mortgage bonds in the hopes that lenders will reduce the interest rates they charge.

No matter how low the rates go, they won't help homeowners who have lost their jobs or seen the value of their property tumble, said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Mass.

"The Fed is arm-twisting to get rates lower, but we're 2 million jobs fewer than we were in July, and we've seen home prices continue to fall, so we're in a bigger hole," Bethune said.

Employers cut 524,000 workers from payrolls in December, the government reported last week, bringing the total number of job losses for 2008 to 2.6 million. Job losses this year may total 3 million, according to a Global Insight estimate.

Sales of single-family homes in November dropped 7.6 percent from October, the most in two decades, according to the National Association of Realtors. Resale prices fell 13 percent compared with a year earlier, the biggest drop since the Great Depression, the Chicago-based trade group said.

The average rate on a 15-year fixed-rate mortgage rose to 4.65 percent this week, according to Freddie Mac. That rate was 4.62 percent last week, the lowest point since June 2003.

Average rates on five-year, adjustable-rate mortgages fell to 5.25 percent, the lowest since the week ending Sept. 8, 2005, when it averaged 5.24 percent. Rates on one-year, adjustable-rate mortgages fell to 4.89 percent, down from 4.95 percent last week.

The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year mortgages averaged 0.7 point last week. Fees for five-year, adjustable rate mortgages averaged 0.6 point, compared with 0.5 point for one-year, adjustable-rate mortgages.

U.S. mortgage applications rose last week to the highest level in more than five years, led by a surge in refinancing as interest rates fell. The Mortgage Bankers Association's index, a measure of mortgage loan application volume, gained 16 percent, to 1324.8 for the week ended Jan. 9, the highest level since July 2003. The group's refinancing gauge jumped 26 percent, and the purchase measure fell 14 percent.