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Mortgage rates plunge to all-time low at 4.96

Mortgage rates fell this week to the lowest level in generations.

The benchmark 30-year fixed-rate mortgage fell 11 basis points this week, to 4.96 percent, according to the Bankrate.com national survey of large lenders. That’s the lowest it has been in the nearly 25-year history of Bankrate’s survey.

A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.5 discount and origination points. One year ago, the mortgage index was 5.24 percent; four weeks ago, it was 5.22 percent.

The benchmark 15-year fixed-rate mortgage fell 11 basis points, to 4.34 percent. The benchmark 5/1 adjustable-rate mortgage fell 13 basis points, to 4.14 percent.

Bankrate’s weekly mortgage survey began in September 1985 (when rates averaged 12.31 percent). The benchmark 30-year fixed had never been below 5 percent until now. Previously, the record low had been exactly 5 percent, last Nov. 24.

It’s hard to identify the last time rates were this low. According to the National Bureau of Economic Research, the average rate on a Federal Housing Administration-insured mortgage was 4.95 percent in October 1956. FHA rates rose past 5 percent the next month. So a good educated guess would be that mortgage rates are at their lowest since autumn 1956.

Greek gift

Thank the Greeks for bearing this gift of low rates. The Germans helped engineer it, too. The Greek debt crisis, and Europe’s response to it, caused capital to flee across the Atlantic, making money cheaper in the states. Tuesday was brutal to the euro: Germany limited short-selling of stocks and bonds, and the euro fell to a four-year low against the dollar. Money zipped across the pond to the United States, where the economy and financial system seem better.

“People rush to us for ‘safety,’ although we’re Greece — we just haven’t gotten there yet,” says Anthony Sanders, distinguished professor of real estate finance at George Mason University, in Fairfax, Va. “Right now we’re the port in the storm.”

The movement of money to the U.S. safe haven “drives down rates, and mortgage markets benefit from that,” Sanders says.

Sanders doesn’t expect this to last. “We have Greece in terms of debt; we just have not suffered the folly that Greece has gone through quite yet,” he said, perhaps not intending to rhyme.

He thinks U.S. interest rates will rise whenever the European or Chinese economies recover. Such a recovery would pull investors’ money from the states, making cash scarcer and thus more expensive to borrow.

Barry Habib, publisher of New Jersey-based Mortgage Market Guide, explains that the fall in the value of the euro causes money to slosh to our shores because of the effects of currency conversions. In a newsletter, he asks subscribers to imagine investing in European bonds when it takes $1.25 to buy one euro, and converting the investment into dollars a year later, when the euro is worth $1.15. That would represent an 8 percent drop in the value of the euro. The investment would lose money unless it gained more than 8 percent.

Where are the borrowers?

Even with rates so low, mortgage lending offices are pretty quiet. According to the Mortgage Bankers Association, you have to go back 13 years to find the last time fewer people were filing applications for purchase loans. Refinance applications were up, to their highest level in nine weeks.

One loan officer lamented that few people are refinancing because all the eligible homeowners already have refinanced. And hardly anyone is buying a house now because people rushed to buy before the end of April to claim tax credits.

The numbers show “that the tax credit pulled sales into April at the expense of the remainder of the spring buying season,” says Michael Fratantoni, the Mortgage Bankers Association’s vice president of research and economics.

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