WASHINGTON – The average rate on the 30-year fixed mortgage this week fell below 4 percent for the first time ever, to 3.94 percent.
For those who can qualify, it's an extraordinary opportunity to buy or refinance. And mortgage rates could fall even further now that the Federal Reserve plans to reshuffle its portfolio of securities to try and lower long-term rates.
On Thursday, Freddie Mac said the average rate on a 30-year fixed mortgage dropped from 4.01 percent last week, the previous low. The average rate on a 15-year fixed loan, a popular refinancing option, dipped to 3.26 percent, also a record.
Still, rates have been below 5 percent for all but two weeks in the past year and have done little to boost home sales. This year is shaping up to be among the worst for sales of previously occupied homes in 14 years.
Many people are reluctant to take the risk in this market. High unemployment, scant pay raises and heavy debt loads are deterring many would-be buyers.
Others can't qualify for the historically low rates. Banks are insisting on higher credit scores. And many want first-time buyers to put down 20 percent. Few people have that much cash or home equity to satisfy the requirement.
Mortgage rates have tumbled because they tend to track the yield on the 10-year Treasury note. The yield has fallen in recent weeks, largely because investors are worried about the U.S. economy and the debt crisis in Europe. So they have shifted their money out of stocks and into the safety of Treasurys.
A drop in mortgage rates could provide some help to the economy if more people could refinance. When people refinance at lower rates, they pay less interest on their loans and have more money to spend.
Consider a homeowner who owes $250,000 and is paying 5.09 percent on a 30-year fixed mortgage. That was the average rate being offered in January 2010. Refinancing the loan at 3.94 percent could save him or her more than $2,000 a year.
But many homeowners with good jobs and stable finances have already refinanced over the past year. Most economists say rates would need to fall at least a full percentage point before it makes sense to refinance again.
The reason is homeowners typically pay a few thousand dollars in closing costs when they refinance. And the low rates being offered don't include extra fees, known as points, which many borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for the 30-year and 15-year rose to 0.8. The average fees for both the five-year and one-year adjustable-rate loans were 0.6 and 0.5, respectively.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.
The average rate on a five-year adjustable-rate mortgage fell to 2.96 percent. The average for the one-year adjustable-rate mortgage ticked up to 2.95 percent.
ATHENS, Greece – The Greek government is to shortly submit a bill Thursday that includes the suspension of thousands of civil servants, as it pushes ahead with harsh austerity measures to stave off a potentially-disastrous default.
Parliament will vote next week on the bill which aims to suspend 30,000 government workers at reduced pay by the year-end and to further cut salaries by an estimated euro2.8 billion ($3.73 billion).
The new cutbacks come on top of salary and pension cuts, as well as a string of tax hikes over the past year and a half that have outraged ordinary Greeks trying to cope with a 16 percent unemployment rate.
A day after a nationwide strike by civil servants shut down the government and much of public transport, about 50 finance ministry workers protested peacefully outside the General Accounting Office over the expected salary cuts.
"We are against much of what this bill contains, that's why we're here," said protester Tassos Goumas, the head of the umbrella group representing finance ministry employee associations.
Retired army officers demonstrated outside the defense ministry over pension cuts, while on the island of Crete, hundreds of angry farmers took over an administrative headquarters to voice their frustration at shrinking salaries.
Greece is struggling to meet budget targets to qualify for the next installment of a euro110 billion ($145 billion) package of international bailout loans it has relied on since May 2010 to pay its bills.
Finance Minister Evangelos Venizelos has said that Greece has enough money to pay pensions, salaries and bondholders through mid-November. But the country needs the next batch of loans, worth euro8 billion ($10.5 billion), to avoid bankruptcy.
Debt inspectors from the International Monetary Fund, European Central Bank and European Commission are now in Athens evaluating reforms before the funds are released.
Greek government spokesman Ilias Mosialos told state TV that the next batch is "assured" as long as the government follows through with public sector reforms and spending cuts.
The Greek economy is expected to contract 5.5 percent this year and many in the markets expect the government to eventually default on its massive debt, despite Venizelos' assurances that Greece will meet its commitments.
It's feared a disorderly Greek default would wreak financial havoc, particularly among Europe's banks, that could trigger another global recession.
Ahead of a trip to Athens, German Economy Minister Philipp Roesler said all of Europe must help Greece to get back on its feet and that German businesses would invest in the country.
"Multibillion-euro investments shouldn't be expected immediately, but it is necessary to help build up the infrastructure and economic structure — because there are two components to the crisis, on one hand the debt, on the other hand the lack of economic competitiveness," Roesler told Germany's ZDF television.
Roesler said the short-term eurozone rescue measures aren't enough in themselves to overcome all the problems.
"We must use intensively the time that we have won (with these measures) to help build up the economy particularly in difficult countries," he said.
Meanwhile, Greece's Deputy Minister of Environment, Energy and Climate Change Yiannis Maniatis said the government has approved a search for offshore hydrocarbon deposits in three areas in the north and southwest of the country with an estimated combined quantity of 250 million barrels.
APTN producer Theodora Tongas in Athens and Geir Moulson in Berlin contributed.
(This version CORRECTS Corrects to show that bill hasn't yet been submitted.)
WASHINGTON – The Obama administration is urging European leaders to deal more forcefully with a debt crisis that could significantly damage the U.S. and global economy.
Treasury Secretary Timothy Geithner told a congressional panel Thursday that the debt crisis has already slowed growth significantly in Europe and around the world. European leaders must move quickly to contain it.
"The crisis in Europe presents a very significant risk to global recovery," Geithner said during a hearing of the Senate Banking Committee. "Europe is so large and so closely integrated with the U.S. and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand."
Geithner told the panel that major U.S. banks and money market funds have moved to substantially reduce their exposure to the countries facing the most pressure. He called their direct exposure "very modest." But he said the crisis was slowing economic growth in Europe, which he said did represent a threat to the U.S. economy.
"We want Europe to move and we want to make sure they move more aggressively," Geithner told the committee.
Geithner said a key difference between the current European crisis and the 2008 financial crisis is that U.S. banks have greater capital reserves to hold against losses.
European leaders are moving to have their banks boost capital reserves, too. That would help them cover losses should Greece or another heavily indebted nation default on its debt.
On Wednesday, German Chancellor Angela Merkel, the head of Europe's biggest economy, backed the effort to recapitalize banks.