Professor Mark J. Perry's Blog for Economics and Finance
The average 30-year fixed mortgage rate fell to an all-time historic low of 5.19% today, according to data available from the FHLMC (Freddie Mac), see news reports here and here. These historic low mortgage rates should be important "mustard seeds" that will help the real estate market recover and heal. Watch for the Housing Affordability Index to reach historical record highs in the coming months. 
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
14 Comments:
Am I missing something? All time historic lows will help the market heal? Didn't all time historic lows contribute to the destruction?
What destruction are you talking about? There's an oversupply of newer, bigger, and better houses.
Does anyone think it's sad Chrysler will stop production for a month, because there are too many autos. That's a big loss to society, particularly when factors of production, e.g. raw materials and energy, are much cheaper. It seems better to give credit to people who aren't creditworthy to buy autos rather than stop producing autos.
As a renter with no hope of buying a home, I ask: What use is this to a renter with no hope of buying a home?
What would this accomplish, other than facilitaring and increase in the Landlord Spread Premium(i.e. the spread between the landlord's cost and rent)?
PeakTrader said:
"There's an oversupply of newer, bigger, and better houses."
Cool, where do I sign up?
Dear Dr. Perry,
I have a question:
Where can I find historical mortgage rates for years prior to 1971?
FreddieMac only has them for 1971 and later.
Alternatively: would you know a site where I could look up historical Japanese mortgage rates, dating back to 1980 or so?
I just can't seem to find this information.
Thank you,
Best regards and Happy Holidays!
FHLMC 30-year mortgages are available from the St. Louis Fed:
http://research.stlouisfed.org/fred2/series/MORTG?cid=114
I'll put the link on the post also.
Are 15 year rates trending down also? I was told by a mortgage broker that while the 30 year rates were dropping the 10 and 15 year rates were not dropping as much.
"These historic low mortgage rates should be important "mustard seeds" that will help the real estate market recover and heal."
But is it really a good thing? We are trying to reflate into 'stable' prices, but those prices are still in the bubble range and higher then historic norms. The rate of home ownership was at an all time high, why do we think that that can be sustainable?
poor boomer>
In case it wasn't obvious, the cheaper the cost to acquire houses, the more competitive he can be with his rent.
@PeakTrader -
I just meant, didn't low interest rates make all those big new houses too easy to afford - leading to many foreclosures? Why would we want to make it easy to buy homes again?
The logic is baffling.
Actually, I don't think house prices and FRM rates of the 1971-2008 are representative of historical rates. Yes it's 37 years of history, but the problem is that US had a huge unfair advantage in terms of post WW2 dominance.
Is there a chart of mortgage rates that goes prior to 1971, in particular going back to Great Depression?
The one shown at Freddie Mac only goes down to 1971, which is meaningless, because of USA dominant position in the world since WW2 = high house prices and high mortgage rates.
Alternatively, I could use Japan as an example: current mortgage rates are at 2.7%.
Does anyone know where I could find a chart of Japanese mortgage rates starting at the beginning of the "lost decade" ??
I wanted to take a look at a history of Japanese rates, to see if there is a possibility of FRM going lower than 5% in U.S. by drawing a certain parallel.
Milena,
The way I see it is like this:
at these prices almost nobody can ACTUALLY afford a house. What happened with the teaser rates and $0 downpayments is that you could afford it for the first 3 years, but you could not ACTUALLY afford it in the end.
Meaning that after all is said and done, you can't comfortably pay for the house, and end up owning it as a 100% owner.
However, some of the more responsible people are hoping that either house prices will drop in dollar terms, or that inflation will eat away at the value of the house (while the smart people beat the inflation rate e.g. on stock market).
Then these people will ACTUALLY be able to buy a house and own it in the end.
"Historic Lows"
Only if history started in 1971 as your data does. I recall my parents having a 30 year mortgage in 1964 that was just under 3%.
I'll concede that current mortgage rates MAY end up being historically low in REAL terms once the coming inflation gets going well, but for now not historically low, not even close.
Japan 30yr Mortgage Rates. Does anyone know where you can get a 30yr time series. Are the rates apples to apples with US, i.e. are there culutural diffs or special covenants, embedded or not embedded options, etc. that would make the rates uncomparable? freedaaron (at) yahoo (d o t) com
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