Mortgage rates drop to new all-time low

The new year began with mortgage lending falling to a new all-time low, reflecting the uncertainty in the economy.

The average rate on a 30-year mortgage fell to 2.65% for the week ending Jan. 7, according to a survey by mortgage finance company Freddie Mac, down 0.99 percentage points from to the previous year. The average rate on a 15-year mortgage fell to 2.16%, down 0.91 percentage point.

Record rates are a boon for homeowners, who can refinance their mortgage to lower their monthly payments, and for homebuyers, who can buy a home that is worth more for the same monthly cost.

HOME SALES: Single-family home sales increase for the sixth consecutive month

Yet low rates are a sign of a struggling economy. When investors get nervous, they look for safer investments and pour money into government bonds and mortgage debt, much of which is backed by Freddie Mac and his sister company Fannie Mae.

Investors are so hungry for security that they are willing to accept lower yields, driving down the interest paid on bonds and mortgages. The Federal Reserve’s actions to support the economy, including cutting short-term rates to near zero and buying government-backed and mortgage-backed bonds, are also pushing mortgage rates down.

And while low mortgage rates make borrowing less expensive, buying a home isn’t necessarily more affordable, noted Freddie Mac.

“Despite a one percentage point drop in rates over the past year, housing affordability has declined because those low rates were offset by rising house prices,” he said in an analysis of last week’s record rates.

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