Mortgage rates in the US dropped to record lows and the mortgage securities sector is on the verge of converging with benchmark 10-year Treasury yields, with investors preparing for substantial purchases by the Federal Reserve, reported the Financial Times.
According to Freddie Mac, the average 30-year fixed-rate mortgage rate fell to 3.40 percent this week from 3.49 percent last week.
“Fixed mortgage rates continued to decline this week, largely due to the Federal Reserve’s purchases of mortgage securities, and should support an already improving housing market,” said Frank Nothaft, Chief Economist at Freddie Mac.
In addition, average mortgage rates excluding five-year adjustable rates reached new record lows.
Keith Gumbinger, Vice-President of Mortgage Research Company HSH, said: “We would expect, as the Fed elbows its way into the market in the weeks and months ahead, that mortgage rates have additional space to decline.”
Under the latest bond purchase policy known as quantitative easing round three (QE3), the Federal Reserve will purchase around US$40 billion (S$49 billion) of mortgage-backed securities (MBS) each month. Overall, the central bank will acquire nearly S$70 billion (S$86 billion) of MBS a month since it will also continue to reinvest its maturing bonds and interest income from its portfolio.
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