The Federal Reserve propped up the housing market after the financial crisis by buying mortgage-backed securities in the market, in a bid to keep mortgage rates low for American homeowners.
Yet when the $1.25 trillion buying program came to an end during the last week of March, many market observers worried that mortgage rates would rise, hurting the U.S. housing market.
It turns out that mortgage rates are still extremely low despite the passing of the Fed’s buying program.
Why? One unexpected reason is that Europe’s financial problems have sent droves of investors into U.S. treasuries, in a ‘flight to safety’. This has depressed U.S. treasury yields, through rallying treasuries, which has flowed through into lower mortgage rates for American homeowners.
Many in the industry now say rates could drift as low as 4.5% this summer from 4.86% now, instead of rising to 6% as some economists projected, making for significantly lower payments for Americans buying homes or refinancing their mortgages.
Refinance business “exploded” last week, says Jeff Lazerson, chief executive of Mortgage Grader, a brokerage in Laguna Niguel, Calif. “It’s schizophrenic. We all had this expectation of higher interest rates and no more refinances.” He says he helped a borrower lock in a 30-year loan with a 4.25% fixed rate last week, the lowest in his 24 years in the business.
Rates on 30-year mortgages averaged 4.84% last week, according to a survey by mortgage-insurance titan Freddie Mac. Rates were quoted late Friday at 4.86%, the lowest since December 2009, according to a survey by financial publisher HSH Associates, and down from a high of 5.27% for the week ended April 9. Rates on 15-year mortgages averaged 4.24% last week—the lowest since Freddie began its survey in 1991.
Thus Europe’s pain has oddly created a broad-based form of economic stimulus for the U.S., since it saves families around the country money on their mortgage payments. It’s a great time to refinance.