Mortgage rates stay low, home buyers party
By Holden Lewis • Bankrate.com

Home buyers and homeowners are partying like it's 2003.

At this party, the spiked punch bowl takes the form of low mortgage rates. People are buying homes and refinancing mortgages with abandon because rates are so low. It's a continuation of a record year for home sales in 2003.

The benchmark 30-year fixed-rate mortgage eked out an increase of 5 basis points to 5.72 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.34 discount and origination points. One year ago, the mortgage index was 5.99 percent.

The benchmark 15-year fixed-rate mortgage rose 3 basis points to 5.02 percent. The benchmark 1-year adjustable-rate mortgage fell 3 basis points to 3.65 percent.

Rates didn't move much because the long-term economic outlook didn't change much during a sparse week for economic reports. Moreover, investors were waiting for the Federal Reserve's rate-setting committee to deliver its pronouncement on the state of the economy. That, too, helped to keep mortgage rates trading in a narrow range.

For the third week in a row, mortgage rates were at low levels that hadn't been seen since July. And rates aren't that far from where they were in mid-June, when they dropped to an average 5.28 percent, the lowest since 1957. As a result, a wave of buyers and refinancers has swept into mortgage offices. Two weeks ago, the Mortgage Bankers Association's purchase index hit a record high, indicating that more people than ever had applied for mortgages to buy homes. Last week, the purchase index declined 5 percent, an indication that people are still buying houses in droves.

It's a continuation of 2003's record year for home sales. A total of 6.1 million existing homes were resold in 2003, an increase of 9.6 percent over the previous record year, 2002, according to the National Association of Realtors. Sales of existing houses accelerated in December as mortgage rates dropped below 6 percent, and that trend in home sales seems to be continuing this month.

The rebound "shows there's still a lot of life in this market," says David Lereah, the Realtors' chief economist. "The biggest factor is a resumed decline in mortgage interest rates, which have been much lower than most analysts expected."

According to the Census Bureau, 1.085 million new houses were sold in 2003, a record and an increase of 11.5 percent over new home sales in 2002. David Seiders, chief economist for the National Association of Home Builders, had predicted that the pace of new home construction and sales would fall off this year. Now he's not so sure, because interest rates so far this year are lower than he had expected.

"There is a possibility 2004 could even surpass the excellent performance of 2003," Seiders says.

In other words, the party will continue until the low-rate punch bowl is taken away.