Mortgage rates near record low

by Jim Buchta of Star Tribune
Published: March 13, 2004
Section: BUSINESS

If you missed the chance to buy or refinance at the lowest mortgage rates in a lifetime last summer, you might be in luck. After a string oflukewarm economic reports, mortgage interest rates once again areteetering near record lows, and a refinance surge could be on the way. On Friday afternoon, mortgage rates at some Twin Cities area lenders hadfallen to within an eighth of a percentage point of their rock-bottomlows of June 2003. "This is within spitting distance of the best dealsthat we've had," said Roger Harrington of Roger Harrington's MortgageAdvisory in White Bear Lake. "There were only a few days in modern history when it's been better than this." Rates vary from lender to lender depending on loan amount, term and other factors, so don't be surprised if your lender can't break any records. The general trend, though, is south.

By the middle of last week the average rate for a 30-year fixed-rate mortgage of $165,000 with good credit and a 20 percent down payment was 5.44 -- a quarter of a percentage point lower than a month earlier, according to a national survey by Bankrate.com. Some borrowers are getting even lower rates. And while a quarter-percentage-point drop in rates may not seem like a substantial decline, with rates in the low single digits it doesn't take much of drop to make a big difference to buyers like Julia and Philip Dudas, who started shopping for their first house two weeks ago.

Stymied by the high price of a starter house in the Twin Cities -- the median sale price last month was a little more than $200,000 -- they're banking on low rates to help them buy their first house. Based on current rates they can afford a $180,000 house, but they feel like they're shopping on borrowed time.

"If rates were at 6 or 7 percent, that would greatly reduce the amount we could borrow, which for us might push us out of the market because we don't have a lot of money," said Julia, development coordinator for a Minneapolis-based non-profit. "We're not poor, we're middle-income people," she said. Their loan officer, Kris Wilson of Summit Mortgage in Bloomington, said business is beginning to boom as borrowers get wind of the new, lower rates. She said some borrowers are getting record-breaking rates and she expects her mortgage originations and refinancings to approach $2 million this month.

Peter Boyle, vice president at First Residential Mortgage in Burnsville, already is seeing an increase in the number of refinancings. He said that during the first week of February, 11 percent of his business was refinances. That number has now risen to 22 percent. "I am getting a lot of calls from past clients to refinance," he said.

For those contemplating refinancing, the conventional wisdom now (depending on your loan balance, term and rate) is that it might make sense for some people to refinance even if the difference between the old rate and new rate is only a half of a percentage point. Since last June, rates have stayed well below 7 percent, low enough to keep the housing market humming. Last year was a record year both for new and existing home sales, a phenomenon that helped keep the economy propped up while other sectors dawdled. Many rate-watchers expected rates to increase slightly as other sectors improved, but mixed economic news has left the economy with a bad case of the hiccups. In fact, no one was surprised that rates dipped a bit last week after a lackluster jobs report eight days ago. Almost immediately the bond market reacted as investors started seeking a safer haven in times of volatility. As money flowed into the bond market, bond prices rose and yields fell. Mortgage rates typically follow bond yields.

The day the jobs report was issued, the yield on the 10-year Treasury note fell from 4.04 percent to 3.85 percent. Rates followed, and the timing couldn't be better for spring home buyers. At Minneapolis-based TCF Mortgage, president Joe Doyle is expected to originate about $150 million in mortgages and refinancings this month based on current volume. Doyle said that with rates within an eighth of a percentage point of last June's record, he anticipates that close to half -- only 49 percent -- of those originations will be refinancings. That mirrors recent data from the Mortgage Bankers of America. "Our purchase business is increasing drastically," Doyle said. "There were a lot of tire-kickers in January and February, and now people are actually making offers on homes. And with the drop in the rates, I think a lot of these people who were pre-approved are going to move a lot quicker." Rising commodity and energy prices are adding to the volatility, said Michael Swanson, vice president and senior economist at Wells Fargo Home Mortgage. The company's regional manager for the mortgage division, Randy Reichert, said that with rates within a quarter percentage point of last summer's record lows, "anybody who missed the boat last summer and didn't refinance probably ought to be talking to their favorite mortgage company."

Rates have dropped so much enough in the past month, Reichert said, "the phone has started to ring again."