30-year mortgage drops below 4 percent

WASHINGTON — The average rate on a 30-year fixed mortgage has fallen below 4 percent for the first time in history.

For the lucky few with good jobs and stable finances, it’s a rare opportunity to save potentially thousands of dollars each year. For most people, it’s a tease and a reminder of how weak their own financial situation is.

On Thursday, Freddie Mac said the rate on the 30-year fixed mortgage fell to 3.94 percent from 4.01 percent last week, the previous low. The average rate on a 15-year fixed loan, a popular refinancing option, dipped to 3.26 percent, also a record.

Mortgage rates are now lower than they were in the early 1950s. The average rate reached 4.08 percent for a few months back then, according to the National Bureau of Economic Research. Although mortgages at that time typically lasted only 20 or 25 years.

Super low rates haven’t been enough to lift the housing market, which has struggled in recent years with anemic sales and declining home prices. Rates have been below 5 percent for all but two weeks in the past year. Yet sales of previously occupied homes this year are on track to be among the worst in 14 years. And homeownership has dropped over the past decade by the greatest amount since the Great Depression, according to 2010 census data released Thursday.

“Considering how far mortgage rates have fallen, we’d expect to see more people refinancing and buying,” said Celia Chen, director of housing economics at Moody’s Analytics. “It’s still the lack of jobs and the difficult credit environment that’s pushing most people away.”

For many Americans, buying a house is too big a risk in this economy. Unemployment is above 9 percent, raises are scarce and millions of foreclosures are forcing down home prices.

Others can’t qualify for the historically low rates. Banks are insisting on higher credit scores. And many want first-time buyers to put down 20 percent. Few people have that much cash or home equity to satisfy the requirement.

“There’s a huge pile of applications we’re rejecting because of low credit scores. It’s been that way for years,” said John Stearns, a senior mortgage banker at American Fidelity Mortgage outside of Milwaukee.

Total mortgage applications fell more than 4 percent this week from the previous week, according to the Mortgage Bankers Association. Refinancing applications declined more than 5 percent.

Mike Anderson, a mortgage broker in Baton Rouge, La., said weeks of low rates haven’t changed the obstacles preventing people from getting loans. Most are either without a job, have bad credit or are have negative home equity. Any one of those is a deal-breaker.

“Same new lows, same problems,” Anderson said. “You can get people with 800 credit scores that you have to turn away.”

Mortgage rates have tumbled because they tend to track the yield on the 10-year Treasury note. The yield has fallen in recent weeks, largely because investors are worried about the U.S. economy and the debt crisis in Europe. So they have shifted their money out of stocks and into the relative safety of Treasurys.

And they could fall even further now that the Federal Reserve has started shuffling its investment portfolio to try to lower long-term rates.

A drop in mortgage rates could help the economy if more people can refinance. When people refinance at lower rates, they pay less interest on their loans and have more money to spend.

Consider a homeowner who owes $250,000 and is paying 5.09 percent on a 30-year fixed mortgage. That was the average rate being offered in January 2010. Refinancing the loan at 3.94 percent could save him or her more than $2,000 a year.