Mortgage rates drop to 21-month low Decline is expected to continue; real estate agents, lenders upbeat


Rates for 30-year mortgages slipped to a 21-month low yesterday, and predictions of continued drops after the first of the year produced optimism among real estate agents and mortgage lenders.

Nationally and locally, they report an increase in home sale and loan activity and expect to see more.

"We've been having an odd, unseasonal burst," said Armour Jenkins, senior loan officer at Signet Mortgage Corp. in Baltimore. "Traditionally, as soon as you get to Thanksgiving, things pretty much slow down. But we've seen more new contracts and people that are out there fervently looking."

The average rate nationally for 30-year fixed-rate mortgages is 7.33 percent, according to the weekly survey released yesterday by the Federal Home Loan Mortgage Corp., the federally-chartered agency known as Freddie Mac. That's down only fractionally from the 7.35 percent rate the previous week, but sharply lower than the recent high of 9.25 percent recorded last November.

The rate slide over the past year means a savings of $135 a month on a $100,000 mortgage, with principal and interest payments dropping from $823 a month to $688. (Mortgage payments also generally include taxes and insurance.)

The Baltimore-area rate tracks the national rate closely, according to Keith Gumbinger, vice president of HSH Associates, a New Jersey financial publishing firm that surveys interest rates.

HSH yesterday showed the Baltimore 30-year rate at 7.61 percent with 1.38 points, unchanged from a week ago. HSH's national average rate -- somewhat different from Freddie Mac's because of different survey procedures and different ways of accounting for points and other fees -- is 7.63 percent with 1.27 points.

In HSH's surveys, those are the lowest rates this year except for one week in July. The Baltimore area rate plummeted to 7.44 percent with 1.73 points the week ending July 21, but went back up the next week.

Rates have been dropping for a year, Mr. Gumbinger said, because "the economy is much softer than expected, and inflation has never really gotten underfoot this year."

Also, he said, "The market has started to believe that we're going to get an honest-to-God budget agreement that will reduce the deficit down the road." Accordingly, he said, HSH is forecast-ing a rate of 7.4 percent in May and "closer to 7" next November.

Frederick Flick, vice president for research with the National BTC Association of Realtors, offered similar prognostications: "I think interest rates can continue to come down some because the economy is pretty slow -- maybe another quarter to half a percentage point over the next six months or so -- and, hopefully, that will happen."

Lower rates "are certainly a great encouragement for any prospective home buyer to get into the market and buy," said Adam D. Cockey Jr., president of the Greater Baltimore Board of Realtors and managing director of W. H. C. Wilson & Co. The effect is greatest, he said, for first-time homebuyers; others may not move because of concerns about selling their homes.

Pending sales in the Baltimore area during October -- contracts signed but not yet closed -- were up 40 percent over the same month a year earlier, according to GBBR figures.

However, Mr. Cockey offered some notes of caution as agents enter a month when people busy with the holidays are less likely to be shopping for a new home.

"I don't think interest rates create the season as much as they did in the past," Mr. Cockey said. In addition to the effect of the holiday, he said, sales could be reined in by concerns over the economy and personal job security. He also said falling rates sometimes encourage buyers to wait, thinking they'll get even lower rates.

"A prediction of falling rates can be just as harmful as it is helpful," he explained. "Prices are not rising at the rapid rate they were in the '80s, so some people will sit back and see if it becomes more comfortable."

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