An opportunity for housing as mortgage rates reach new historic low

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As mortgage rates continue to drop to record lows, housing experts in New Jersey say the trend could help spur home-buying activity by next year and create valuable opportunities for current homeowners to refinance.

As mortgage rates continue to drop to record lows, housing experts in New Jersey say the trend could help spur home-buying activity by next year and create valuable opportunities for current homeowners to refinance.

The trend continued Thursday, as the average rate for a 30-year fixed mortgage fell below 4 percent for the first time in history, Freddie Mac said, citing increasing concerns about the global economy. The rate dropped to 3.94 percent, down from last week’s historic low of 4.01 percent, as the 15-year fixed rate fell also fell to the lowest level on record for the sixth straight week.

Jeffery Otteau, president of Otteau Valuation Group, in East Brunswick, said Thursday the drop will have few immediate effects on home sales, because of lingering concerns about job security and future income. But the housing market could see the benefits starting in mid-2012, “because the rent-versus-buy decision is sort of being tilted in favor of home purchasing.”

“Given that rents are rising at about a 4 percent annualized pace in New Jersey, and that interest rates on home purchase mortgages are falling, we’ve reached the point now where rental costs are equal to home ownership costs,” Otteau said. “And we expect that over the longer term, that’s going to create additional housing demand and purchasing activity.”

As a sign that the downward trend will continue through the rest of the year, Otteau pointed to the Federal Reserve’s commitments to keeping interest rates low through 2013 and reducing long-term interest rates.

For current homeowners, the plunge in mortgage rates also creates a major opportunity to refinance, said Robert W. Burchell, a housing policy expert and professor at Rutgers University’s Center for Urban Policy Research. The option “provides enormous resources for people,” whether owners use the option to shorten the term of a mortgage or reduce their monthly payments.

“They can essentially take out that money and not shorten their time, but they may even be able to use that money for other things that they may need, in terms of their own personal survival during this recession,” Burchell said.

He said the process of refinancing is “quite easy to do,” although a recent wave of owners looking to refinance has caused backlogs for appraisal services.