Investors seek U.S. bonds as a safe asset when the global economy is in question. That keeps a lid on yields on the 10-year Treasury, which mortgage rates tend to track.
"You've got the one bright spot, which is the U.S. economy, which questions why rates are staying so low," says Joel Naroff, president of Naroff Economic Advisors. "It's really clear that until the Fed tells everyone when it thinks rates should go up, rates won't go up. They will just bounce around."
The Fed and interest rates
The Federal Reserve's monetary policymaking committee meets Dec. 16-17 for the last time this year. Behind closed doors, it will consider the future of the federal funds rate, a benchmark rate for business and consumer loans, including mortgages, based on the state of the U.S. economy.
So far, inflation has stayed in check, despite the potential economic shot in the arm resulting from the drop in oil prices. Higher inflation is one reason the central bank may raise rates. The employment picture is also healthy, according to the Dec. 5 government report that showed employers added 321,000 jobs in November -- many of them temporary or part time, but still higher than expected. Average hourly earnings also increased by 0.4 percent, the biggest gain since June 2013.
"The Fed is in a conundrum here because the U.S. is doing better than everyone else," Rehling says. "But the question is: Will the global weakness eventually impact us here?"
More homeowners refi
The decline in rates may have helped push some borrowers to refinance their home loans. The volume of refinance applications jumped 13 percent last week from the previous one, according to the Mortgage Bankers Association. Purchase applications also ticked up 1 percent and the overall volume increased 7.3 percent. The group also noted this week in a separate report that mortgage standards loosened in November.
Fannie and Freddie intervene
Despite the low rates and easier requirements, there are still fewer first-time homebuyers than the historic average in today's market. In October, first-time homebuyers made up 29 percent of all purchases, while the long-term average is 40 percent, according to the National Association of Realtors.
As a result, Fannie Mae and Freddie Mac this week introduced new programs that allow borrowers to put only 3 percent down for a mortgage. Previously, they required minimum down payments of 5 percent. The programs may attract first-time homebuyers, many of whom find the down payment requirement a challenging hurdle.
Rates on loans under the programs are still up in the air as lenders consider adopting the lower down payments, says John Stearns, a senior mortgage banker with American Fidelity Mortgage Services in Wisconsin. Fannie's program launches Dec. 13, while Freddie's doesn't start until March.
"It may take a week or so for lenders to get going on this, if lenders do it," says Stearns, who wonders if the program will be cheaper than one backed by the Federal Housing Administration, which requires a 3.5 percent down payment. "But as I say, 'something is better than nothing.'"