The slow economy has triggered one of the greatest drops in mortgage rates since the 1950′s. This follows an earlier decline in mortgage applications that fell by 4.4% last week and home refinancing dropping to 5.9%.
The reason for the low levels of applications is because of the expiration of the special tax credits that home buyers were getting. Aside from the tax credits, banks came up with stricter guidelines for approval after a large number of foreclosures have risen over the past few years. Borrowers are now having difficulty qualifying for a mortgage because they need to have a high credit score and a 3.5% down payment.
Another issue that has not helped matters is the present European Union debt problems which have added to the uncertainty in the housing market as investors have decided to acquire Treasury bonds as a safer investment. According to Guy Cecala, of Inside Mortgage finance, “what they really want to do is buy something that is government-guaranteed.” When situations like this occur, investors opt for Treasury bonds that have minimal income or Fannie Mae and Freddie Mac mortgage backed securities for higher earnings.
Real Estate analysts anticipate the mortgage rate to recover in the event the government launches a new plan to boost the housing market. Analysts are recommending to homeowners who need refinancing to take advantage of the record low interest rates.