Mary Ellen Podmolik
September 16, 2008
Average rates on fixed-rate, 30-year conforming mortgages were 5.78 percent Monday, down from 6.08 percent last week, according to Bankrate.com. Two months ago, those rates were hovering around 6.5 percent.
The decline is largely due to the stock market’s abysmal performance Monday and investors’ flight to vehicles like 10-year Treasury notes, the yields of which help set mortgage rates.
That’s good news for potential home buyers, and the rate declines may not be over. Analysts believe the Federal Reserve will consider cutting key interest rates by one-quarter of a percentage point when it meets Tuesday. The immediate impact would be a decline in rates for home-equity loans.
"If you meet today’s stricter requirements, and have found the home of your dreams, which may be on sale at 10 to 20 percent off peak prices, by all means pull the trigger on your deal," said Keith Gumbinger, vice president of HSH Associates, a New Jersey-based financial information firm.
But many buyers remain reluctant, and analysts say housing prices will need to stabilize before the crisis that has gripped the financial industry can abate.
Because most traditional loans are secured by Fannie Mae and Freddie Mac, the upheaval among Wall Street banks doesn’t affect 80 to 90 percent of buyers, said Ken Perlmutter, president and founder of Perl Mortgage Inc. in Chicago.
It could affect, at least in the short-term, the ability of consumers to secure jumbo mortgages because there are fewer players.
Over time, though, the credit markets for larger mortgages may thaw because the remaining players are healthy, said Rebel Cole, a finance professor at DePaul University.
In the meantime, potential buyers are almost certainly double-checking their confidence level in a shaky economy.
"There’s been this steady and consistent stream of increasingly bad news," said Geoff Smith, vice president at the Woodstock Institute. "I’m kind of frightened to see what the next headlines bring too. It’s got to have some affect on some buyers."
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