After increasing slightly by above 5 percent, average 30-year fixed mortgages in the US dropped below 5 percent, while the average rate for 15-year fixed mortgages fell 4.3 percent.
The decline in mortgage rates may indicate a reversal of last week’s rapid rate increase, helped by the Federal Reserve, which purchased large bulks of government bonds that drove mortgage yield bonds down. Home loan rates are closely tied to government bonds and many economic analysts noted that a see-saw pattern will likely remain. However, they predicted that interest rates should stay near the 5 percent mark at the start of 2011 before increasing.
If projected economic improvements occur, many investors can anticipate both mortgage rates and government bonds to increase, as the Federal Reserve slowly increases interest rates to curb inflation.
US mortgage rates have not been above 6 percent since November 2008, when they averaged about 6.3 percent. Since then, the Federal government has lowered interest rates to boost the economy, but with the dollar so cheap, many economists predict the possibility of inflation in the coming years if the fed rate isn’t increased.