Low Prices, Low Rates Mean Opportunity: 30-Year Rates at Lowest in 4 Years

Freddie Mac reports a decline in the 30-year fixed mortgage rate to 5.47 percent during the week ended Dec. 11 from 5.53 percent last week and 6.11 percent a year ago.

Some lenders are locking in even lower rates as they build on momentum started when the Federal Reserve announced plans last month to purchase a substantial number of mortgage-backed securities. HSH Associates and Inside Mortgage Finance are reporting interest on 30-year fixed loans at 5.33 percent and 5.09 percent, respectively.

Freddie Mac chief economist Frank Nothaft says mortgage rates also were driven downward by the recession and rising unemployment.

Since housing prices have also fallen dramatically all over the country and rates on 30-year fixed-rate mortgages are already close to 5.5 percent, experts say it's possible, with government encouragement, that rates will fall as low as 4.5 percent.

Now is the time for first-time buyers to step up. Here are some things to consider:

* Prices have always softened in the winter. As temperatures fall, bargain hunters will have bigger then usual opportunities.
* New homes are likely to become scarce. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, said he believes that a steep drop-off in inventory of new homes is coming soon, due to a rapid decrease in home builder activity.
* Location, location, location. Buying the best-priced house in a really good neighborhood is still smart.
* Will values go up? You may have to live in a house for 10 years, but over time, buyers will almost certainly make money.

Source: The New York Times, Ron Lieber (12/05/08) and The Washington Post, Dina ElBoghdady (12/12/08)