Record-Low Mortgage Rates: Basement for Sellers?

Remember when a six percent mortgage seemed like a bargain? That is a piece of ancient history from Year One BC (Before the Collapse — also known as 2007 AD). At the end of the Bush Administration, rates below 7 percent were something of a bargain.

This chart, from the home lending quasi-agency Freddie Mac, shows how rates have peeled back about one percentage point each year since the Deluge, based on the 30-year mortgage. They dropped to six percent in 2008, the fives in ’09, the fours in ’10, and the three’s late last year. Easy to read as a sundial. Rates gyrated from 8 percent to 16 percent through presidencies past. (The peak was 18.63 percent in October 1981.)

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So what now? Yahoo Finance Exchange’s Elizabeth Trotta calls it “a constant debate between the housing bulls and bears as to whether the bottom is in." Freddie Mac could have used the same headline week after week, 'Historic Lows for Fixed Mortgage Rates Hold Steady'as it revealed yet anew low at 3.78 percent for a 30-year this week, down 1/100 of a point. It’s hovered around four percent most of the year.

Does this rate floor suggest mortgage markets have enountered some law of really small numbers? Can it go any lower? Maybe, some say. Investment funds looking for yield are happy to snap up safe yields for prime mortgage paper. There is certainly no law against going below three. Fifteen-year refinance rates are already there.

Japan’s rates have been in the twos for years. Money market rates, where banks and businesses raise cash, have been in the zeros at times over that same period. That's because — since "BC" — government-backed loans from the U.S. and Germany have become the virtual cash of global financiers.

Don’t hold out for them to give you money at zero percent rates, though. There are signs that as mortgage demand has picked up, a refi boom may be on the way, with some changes in loan rules eased in June. In response, banks will start to ratchet back up rates and fees, most likely in a slow and sure way. So don’t panic.