Advertisement

Unexpected Mortgage Interest Rate Dip to 8.4% May Lure More Buyers

Share via
From Washington Post

Prospective home buyers are being greeted these days by something unexpected--lower mortgage rates.

To the surprise of some experts, mortgage interest rates have fallen--to 8.4 percent for a 30-year, fixed-rate loan--and probably will stay about at that level or rise only slightly in the coming months, said Robert Van Order, chief economist for the Federal Home Loan Mortgage Corp. (Freddie Mac).

This decline, about three-quarters of a percentage point since early January, could mean that more people will be able to buy homes this year than builders and economists had expected.

Advertisement

“The general feeling is that not much is happening to inflation and that a reasonable recovery is under way, the consumer price index is still not growing fast and there’s very little evidence of wage pressure,” Van Order said. “All this conspires to keep interest rates down.

“Most forecasters predicted a decline in housing production and sales” this year, “but what we think will happen now is that 1995 will be more like 1994,” he said.

“You’ll see sales down this year, but just not as much as they would have been if interest rates were not down,” agreed Robert Sheehan of Regis J. Sheehan & Associates Inc., a management and market-research consulting firm.

Advertisement

Despite the recent dip in interest rates, many housing experts believe the end of the interest-rate decline has been reached, including Sheehan, who said “it’s highly unlikely we’ll go back to rates under 7%, as we did a year ago.”

David A. Lereah, chief economist for the Mortgage Bankers Assn. of America, also said he expects a slower economy in the next two months, with mortgage rates hovering in the 8.3% to 8.5% range where they are now. He predicted “a favorable interest-rate environment” for the next six months, but fears rates will inch up after that.

And cuts in federal programs, both real and threatened by Congress, “keep potential buyers very reticent” about purchasing homes, Lereah added.

Advertisement
Advertisement