Low Mortgage Rates May Lift Housing Sector

Washington, DC, April 6, 2009--Fixed 30-year mortgage rates fell to a record low for the second consecutive week last week, hitting 4.78 percent, Freddie Mac said.

The rates are the lowest in records dating to 1971, and come after Federal Reserve Chairman Ben Bernanke told Congress in November that helping the most creditworthy borrowers was essential to reviving the economy.

Mortgage applications in the U.S. rose for the fourth straight week last week as a decline in borrowing costs spurred homeowners to refinance, while purchases of new houses unexpectedly rose in February. The Fed’s effort to bring down fixed rates may give consumers as much as $25 billion, said Mark Zandi, chief economist of Moody’s Economy.com.

“It certainly gives further fuel to consumer spending,” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts. “It puts more money into circulation.”

The extra cash may help boost first-quarter consumer spending by 1 percent to 1.5 percent, said Barton Biggs, managing partner at New York-based hedge fund Traxis Partners LLC. Consumer spending accounts for about two-thirds of the U.S. economy.

Cheaper financing may also help spark a turnaround in the housing market. Sales of previously owned homes rose 5.1 percent to 4.72 million at an annualized pace in February from the prior month as low mortgage rates spurred demand, the National Association of Realtors said.

“We have seen evidence that home sales are bottoming,” said Jim O’Sullivan, senior economist with UBS Securities LLC, in Stamford, Connecticut. “This should be positive.”