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Mortgage Rates Low, Home Sales Strong

Kenneth R. Gosselin

May 27, 2010

Mortgage rates are hovering near historic lows, and Connecticut's home sales are making a strong showing this spring as buyers display increasing confidence that the market is on the mend, two separate reports Thursday showed.

That combination is raising hopes that lower borrowing costs will continue to spur a recovery in the state's housing market, which had been boosted by the federal home buyer tax credit now winding down.

It remains unclear what effect the end of the tax credit will have on the housing recovery in a state still hamstrung by slow job growth, but some experts said low mortgage rates could help keep a modest recovery on track.

"In a market like this, where it is kind of fragile, the credit ending took some of the wind out of the sails," said Michael Menatian, president of Sanborn Mortgage Corp. in West Hartford. "This will put it back in. If we see the numbers increase down the road, this will be the reason why."

The rates on 30-year, fixed-rate home loans nationally averaged 4.78 percent, down sharply from 4.84 percent a week ago, according to mortgage giant Freddie Mac's weekly survey of rates. Thirty-year rates fell to 4.71 percent in early December, the lowest in the 40 years Freddie Mac has been tracking 30-year rates.

Some economists are forecasting that rates could fall even farther his summer, perhaps as low as 4.5 percent.

The average for a 15-year, fixed-rate loan this week was 4.21 percent, down from 4.24 percent a week ago — the lowest since 1991 when Freddie Mac began tracking 15-year rates.

Homebuyers in Connecticut and across the country could end up benefiting from the debt crisis in Greece, Portugal and Spain that has sent stock market tumbling. The crisis, while could threatening the U.S. economic recovery in the long run, has whipped up a rush by investors wanting to buy U.S. treasuries. That is sending bond yields down and taking home loan rates down with them, experts say.

The low mortgage rates are surprising considering that many economists had forecast higher rates, possibly closer to 6 percent, this spring. It remains uncertain how long rates will remain low, or just how far they will fall.

The low rates are coming as the state turned in a healthy month for home sales in April.

Sales prices for homes in Connecticut rose for a fifth straight month in April as sales soared 41 percent across the state.

The median sales price — where half the sales are above that level and half below — for single-family houses rose 3.3 percent to $235,000, from $227,500 for the same month a year ago, according to the report from The Warren Group, which tracks New England housing trends and publishes The Commercial Record.

The year-over-year price gain was more modest than what in March, when the median jumped 8.1 percent, suggesting that momentum may be slowing.

In Hartford County, the median sale price rose 3 percent, to $208,000, from $202,000 a year ago. Sales jumped 38 percent.

Although the overall market gained in April, the recovery remains uneven across Connecticut's eight counties. Prices rose in only four of the eight counties, with Litchfield County gaining the most, up 7.1 percent. The sharpest price decline was seen in Middlesex County, down 21.8 percent.

Statewide, sales rose in all but Windham County.

So far, the low rates have stoked a new wave of refinancings. Just a couple of weeks ago, Menatian said, there were next to no calls on refinancings as 30-year rates rose above 5 percent. That has changed dramatically in the past two weeks, with the number of calls averaging at least a dozen a day, he said.

Robert Fiorito, a real estate agent at Coldwell Banker Premiere Real Estate in Berlin, said April was "off the charts" in central Connecticut because of the tax credit. The credit required a signed contract by April 30 and a closing by June 30 to qualify.

Early May was "way off" in activity, but more calls are now coming into the office because of the low mortgage rates, Fiorito said.

"Those folks that missed out are starting to come back," Fiorito said.

While low rates make home buying more affordable, some experts warned Thursday that they can only have so much affect on home buying and price increases.

"There is definitely growing confidence in the housing market, but foreclosure activity and high unemployment continue to threaten the housing market recovery," Timothy M. Warren Jr., chief executive of The Warren Group, which tracks housing trends in Connecticut and throughout New England.

A report last week by the Mortgage Bankers Association showed that mortgages in foreclosure and 90 days or more past due remain at record levels in the state. Foreclosures pose a threat to price gains because sales of distressed properties typically command lower-than-market offers. Studies have shown that those sales also affect sales prices of nearby properties, even if they are not in foreclosure.

There are also hurdles to getting the lowest rates, as bankers have returned to more conservative underwriting. On a purchase, for example, a credit score of 740 or better plus a down payment of 20 percent could be required.

The 30-year rates reported by Freddie Mac required the payment of 0.7 point. A point is pre-paid interest, equaling 1 percent of the loan amount.

Connecticut also is still struggling with high unemployment, although there was an unexpectedly healthy spurt of hiring in the first four months of the year.

"The job market is still going to pay a big part in how the housing market does," said Donald L. Klepper-Smith, an economist at DataCore Partners Inc. in New Haven. "You're not looking at a big uptick in the housing market because you don't have a big surge on the income side."