Home loans may go as low as 4 percent if the economy worsens, said Robert Edelstein, a professor at the Haas School of Business at the University of California, Berkeley. Record foreclosures, falling home prices and an economy that has lost 5.1 million jobs since December 2007 will pressure Bernanke to further reduce borrowing costs. “The Fed will have to do whatever it takes,” Edelstein said. “People will buy cheaper houses at very low interest rates.”
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Conventional mortgages averaged 4.61 percent in 1951, 4 percent when backed by the Veterans Administration, and 4.25 percent by the Federal Housing Administration, according to The Postwar Residential Mortgage Market, a 1961 book written by Saul Klaman and published by Princeton University Press. Rates during the 1930s were as high as 7 percent.
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Mortgages were cheaper through most of the 1940s, ranging from about 4 percent to 5.7 percent, depending on whether the lender was a life insurer, a commercial bank or a savings and loan. In that era, most loans were for 14 years and less.
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The central bank has purchased more than $300 billion of mortgage-backed securities in 2009 through the week ended April 8, helping to cut home-loan rates to 4.82 percent last week from 5.1 percent at the start of the year, according to Freddie Mac data.
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The difference between 30-year mortgage rates and 10-year Treasury yields has narrowed to about 2.2 percent from 3.1 percent in December, which was the widest since 1986. The spread remains almost 0.7 percentage point above the average of the past decade, data compiled by Bloomberg show. Rates for 15-year mortgages are about 1.8 percent above 10-year Treasury yields, compared with an average 1.4 percent since 1999.