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Mortgage rates hit another record low

by Alexandra Zega

Happy holidays, homebuyers! You just got a very nice present.

Mortgage rates have hit record lows, with the interest rate on a 30-year, fixed-rate loan, the most popular choice of homebuyers, averaging 3.91% this week, according to Freddie Mac's Primary Mortgage Market Survey.

That's down from 3.94% last week, and is the lowest in the 40-year history of the survey.

Rates have fallen 0.9% since the beginning of the year. For a homeowner with a $200,000 mortgage, that means a savings of $1,200 a year, said Frank Nothaft, Freddie's chief economist.

With rates at or below 4% for the last eight weeks, home sales are getting a boost, Nothaft added. Existing homes sold at their fastest pace since January last month, according to the National Association of Realtors, and new home sales edged higher in November as well.

Meanwhile, rates for 15-year mortgages remained unchanged, matching last week's record low of 3.21%.

"We've entered the holiday lull with nothing much happening to change rates one way or the other," said Greg McBride, senior financial analyst for

Mortgages should remain affordable deep into 2012, he added. As the European debt crisis and sluggish U.S. economy keep investors focused on finding safe havens for their cash, demand for U.S. Treasury notes should remain high. That drives down their yields, which mortgage rates closely track.

"For well-qualified buyers, interest rates should be no impediment to home buying in 2012," said McBride.

Refinancers also are pouncing on the bargain rates.

According to the Mortgage Bankers Association, about 80% of all mortgage applications last week came from existing homeowners looking to refinance their old loans into more affordable ones.

McBride even expects that lenders will ease up on borrowing requirements -- marginally -- in 2012.

"Instead of requiring a 740 credit score for the best rates, lenders will dip their toes into 720 waters," he said.

That is, however, just a baby step towards making mortgages much easier for borrowers with less-than-perfect credit histories to obtain.

"We're not going back to the Wild West days of the boom," said McBride.


(C) CNN Money



Since the beginning of the house-price crash in 2007, analyst after analyst has predicted that "the bottom" in house prices is just around the corner - only to be wrong every time.

But now, finally, it looks as though house prices may actually be nearing a bottom.


Because, after falling nearly 35% from their 2007 peak, nationwide house prices are finally approaching "normal" levels on two key valuation measures: The "price-to-rent ratio," which measures house prices relative to what the houses might rent for, and the "price-to-income ratio," which measures house prices relative to average incomes.

Using the first ratio, economists at Goldman Sachs have concluded that national house prices will decline another 2.5% in 2012 and then bottom over the course of the following year.

House prices differ markedly depending on where you live, of course, and Goldman's analysts have considerably different predictions for different markets. Prices in New York, Portland and Atlanta, Goldman predicts, will still see significant declines. While prices in Detroit, Miami and Cleveland should rise.

Importantly, after a price bubble similar to the one the U.S. just experienced, prices often don't stop at "average" levels on the way down. On the contrary, they often plunge straight through "fair value" and spend years below average levels. And that certainly could happen to house prices this time around.

But Goldman's economists believe house prices will level out in a year or two. And unlike other analysts who have made similar predictions in prior years, Goldman's economists actually have data on their side: The price-to-rent ratio really has fallen to normal levels.

Of course, even if house prices do bottom in 2013, that doesn't mean that they'll quickly shoot up again - or that housing will once again be the "great investment" that everyone thought it was back in the boom years.

One of the reasons house prices are expected to bottom soon is that houses are currently more affordable than they have been in the past. But housing "affordability" is judged, in large part, on mortgage rates, and mortgage rates are currently near an all-time low. If and when the economy begins to recover in earnest, mortgage rates will likely rise, and, as they do, houses will become less affordable.

So it is likely that, even after they bottom, U.S. house prices will face head winds for a long time.

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