30-year mortgage rate lowest since 2004
Mortgage rates fell to a four-year low a day after the Federal Reserve cited a weakening economy in its emergency reduction of the benchmark overnight lending rate.
The drop may encourage up to 7 million homeowners to apply for new mortgages, many to avoid resets of adjustable rates, Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York, said in a report yesterday. Lower monthly payments would put more money in their pockets and encourage consumer spending, he said.
The average rate for 30-year fixed mortgages declined to 5.31 percent yesterday, the lowest since March 2004 when the Fed's benchmark rate was 1 percent, according to research firm Bankrate Inc.
"An increase in mortgage refinancings will eventually be a game-changer, turning the dynamic on mortgage payments into a positive from a negative," said Crescenzi at Miller Tabak, a securities firm that specializes in institutional investors.
Also, applications for US home mortgages jumped for a third consecutive week, an industry group said yesterday.
The Mortgage Bankers Association said its seasonally adjusted index of refinancing applications surged 16.9 percent in the week ended Jan. 18 to 4,178.2, the highest level since March 2004. The activity was up 92 percent since the beginning of November and more than offset a 4.6 percent fall last week in the index for home purchase applications to 439.9, it said.
Refinancings accounted for two-thirds of all applications.
The MBA's market composite index, a measure of overall mortgage loan application volume, rose last week by 8.3 percent to 981.5.
Homeowners will face more hurdles this time around in obtaining the loans, said Jay Brinkmann, vice president of research and economics for the Mortgage Bankers Association.
"With tighter credit conditions we do not know how many of these applications will become loans," Brinkmann said. 