The dizzying descent down the rabbit hole of the current financial markets just got curiouser and curiouser.
Long term, 30-year fixed mortgage rates dipped below the rate of short-term adjustable rate mortgages in the weekly Freddie Mac survey for the first time ever. That means, for the moment at least, a long-term loan may be cheaper in the short run than its adjustable rate cousin - which goes against the usual reason for getting an adjustable rate in the first place.
The difference isn't much - only two points separating the 30-year fixed and an AJM mortgage that resets after one year. Freddie Mac reported that the average 30-year fixed rate mortgage issued during the week ending April 23 was 4.80 percent, vs. 4.82 percent for the AJM. An AJM re-setting after five years was a bit higher, at 4.85.
More than anything else, it shows the current unpopularity of adjustable rate mortgages, which have been blamed for playing a significant role in the current foreclosure crises and collapse of the housing market by enticing borrowers into buying more home than they could afford. Other homeowners with AJM who planned on refinancing when their rates changed have had difficulty doing so because collapsing housing prices put them "underwater" on their mortgage, owing more than the house is worth and making them poor candidates for a refinance.
As a result, investors are increasingly reluctant to invest in adjustable rate mortgages. And with strong demand due to low interest rates and home prices, lenders have little incentive to offer even lower temporary rates as an incentive to attract potentially marginal customers.
This week's 4.80 percent 30-year rate represents a slight drop from 4.82 percent the week before. Thirty-year rates have been hovering below five percent since the March 19 report, hitting their lowest point on April 2 at 4.78 percent.
Rates have remained low since the Fed announced March 18 that it would buy up to $750 billion of mortgage-backed securities in an effort to reduce interest rates and spur the flagging real estate market. The April 2 rate of 4.78 percent was a record low in Freddie Mac data, dating back to 1971.
