Because of how low rates are, all terms — including shorter terms — have increased volumes over last year —Kim Casaday, president of residential lending for Zions Bank
SALT LAKE CITY — Mortgage interest rates have fallen to the lowest levels since long-term mortgages were introduced in the United States. The result is housing affordability that is reaching new highs, despite a persistent recession that keeps many people from purchasing a home.
"Interest rates on residential loans are the lowest they have been in 60 years," said Kim Casaday, president of residential lending for Zions Bank. "What's even cooler … is that we're seeing 50-year highs in home affordability."
Earlier this month, Carrie Boucher and her new husband moved their combined family into a larger house in Kaysville. While the Davis County house had the same number of bedrooms as the South Jordan home that she is leaving, the new house offered more square footage and a "clean slate" where the family could start fresh in their new lives together.
Because interest rates were so low, she said they could manage to buy a property that was 20 percent more expensive than the Salt Lake County house she sold.
"It was a combination of that we could afford to (pay more) and because interest rates are really great right now," Boucher said.
Freddie Mac reported that rates are the lowest since the government-sponsored enterprise began keeping records in 1971. Today's average 30-year rate is even lower than the average 20-year or 25-year rate, which was the typical loan in the 1950s.
Data from the National Bureau of Economic Research showed that between July 1950 and February 1951, long-term rates averaged 4.08 percent. This week's average 30-year rate was 3.78 percent.
Mortgage rates tend to track the yield on the 10-year Treasury note, which is approximately 1.74 percent, said Westminster College economics professor John Watkins. That is the lowest level since the Federal Reserve Bank started keeping daily records in 1962. As recently as July 2011, the 10-year note exceeded 3 percent.
Watkins said the falling interest rates are due to economic uncertainty in Europe, which threatens the U.S. housing market and economy if the situation worsens.
This month, the National Association of Realtors' composite quarterly Housing Affordability Index climbed to a record high of 205.9 in the first quarter of 2012. The index is based on the relationship between median home price, median family income and average mortgage interest rate. A higher index indicates greater household purchasing power.
A composite index of 100 is the point where a median-income family household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent down payment and 25 percent of gross income devoted to the mortgage, said NAR spokesman Walter Molony.
This is the first time the quarterly index has pushed past the 200 mark since record-keeping began in 1970, he said.
The index showed the median income family, earning just under $61,000, could afford a home costing $325,500 in the first quarter, which is more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would require only 13.5 percent of gross income.
A companion index measuring the ability of first-time buyers to purchase a home also set a record, with the first-time buyer index reaching 135.8 in the first quarter.
While no state index exists, in February, the NAR published its first metropolitan area affordability index iwith annual index readings for 2009, 2010 and 2011. Salt Lake City registered 84.1, 93.1 and 111.0 respectively.
The low rates are also having an impact on the loans some buyers are selecting.
"Because of how low rates are, all terms — including shorter terms — have increased volumes over last year," Casaday said. "The 30-year amortization is the most popular loan because of the longer term and the lower payment amount. Many times the basis of the decision (to refinance) is payment."
The 15-year fixed-rate mortgage remained unchanged from last week at a historic low of 3.04 percent. That makes monthly payments higher, but the savings in interest for those who can afford it can reach six figures.
Still, many homeowners are upside down in their mortgages and are unable to refinance to take advantage of the low rates, said Michele Weaver, vice president and manager of The Homeowners Café. She said there are programs, such as the Home Affordable Refinance Program, aimed at helping financially troubled property owners lower their interest rates and improve their situation.
Greg Osborne, regional manager for Wells Fargo Home Mortgage, said homeowners who are current in their payments but may be under water in their mortgage may also be able to refinance through the Federal Housing Authority Streamline program, which allows homeowners to reduce the interest rate on their current home loan quickly and often without an appraisal and less paperwork. The property must have an FHA loan in good standing and the refinance must lower the monthly interest payments.
"There are more opportunities now than ever for people who are potentially upside down on their house," Osborne said. "There is not a solution for everyone, but there are more options than there have ever been."