CHICAGO -How long can they stay this low?
Less than a day after the Federal Reserve said it would double its purchases of mortgage debt, fixed rates on conforming 30-year mortgages dropped as much as half a percentage point to under 5 percent, and there's thought that rates aren't headed back up soon.
A check of Web sites yesterday showed rates ranging from 4.625 percent to 4.75 percent, not including points, for the most credit-worthy customers. Except for a day or so in December, rates are at the lowest levels since at least 1965, according to Freddie Mac.
Mortgage rates were already at near-record lows. Nationally, the average conforming 30-year fixed rate for the week ended yesterday was 4.94 percent, according to financial publisher HSH Associates.
The rate drop is likely to encourage more borrowers to see whether they can qualify for the lowest rates. Don't be surprised, though, by busy signals at your local lender.
"It becomes a capacity issue with how much we can do," said Victor Ciardelli III, CEO of Guaranteed Rate in Chicago.
Ciardelli said he'd be shocked if rates went much lower, but others wonder whether a new rate floor is imminent.
On Wednesday, the Federal Reserve said it would buy up to $300 billion of long-term U.S. Treasuries and increase purchases of Fannie Mae- and Freddie Mac-backed securities to $1.25 trillion, up from $500 billion.
Because spending that kind of money requires the Fed essentially to print money, it meant risking inflation - and yesterday there were early indications that that was happening.
It cost about $1.37 to buy a euro, almost 2 cents higher than the previous day - an unusually large leap. And the British pound gained 3 cents against the dollar, which fell sharply against the Japanese yen.
The jump in oil prices was even more dramatic. The price of a barrel of crude oil went up nearly $3.50, or 7 percent, on the New York Mercantile Exchange, to its highest level since early December.
That doesn't mean inflation is a sure thing, by any means. In fact, most economists believe high unemployment and sluggish consumer spending will keep inflation in check as businesses hold down prices in order to maintain sales.
And given the poor shape of the economy, the Fed made clear that it isn't worried about inflation. It's more concerned about falling prices, or deflation. The country's last serious bout of deflation came in the 1930s.
The Fed move won't mean car loans and credit cards will get any cheaper. Those are tied to short-term interest rates, and the Fed has lowered those rates to nearly zero.
The question to be answered is whether lower rates will jump-start the housing market. As much as three-quarters of the mortgage application activity in recent months has been for refinancing rather than home purchases.
The Associated Press contributed to this article.