Tuesday, June 9, 2009

30-Year Fixed Rate Punctures 5% Mark

The average contract interest rate for 30-year fixed-rate mortgages increased to 5.25 percent from 4.81 percent, with points decreasing to 1.02 from 1.28 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The 44 basis point increase in the 30-year rate was the largest since a 48 basis point increase in October 2008. [Mortgage Bankers Association]

This news sends a frisson down the spine of any buyer, seller, broker or loan maker. Much of the recent burst in residential sales activity was due to interest rates that were at 50-year lows around 4.75%. No more. The Obama administration may step in purchase mortgage-backed securities with the intent to drive down interest rates, just as they did a few months ago. But does Washington have the reserves to do so? If interest rates don't float down, look for further declines in prices.