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Mortgage Rates: How Low Can They Go?

In what has become a limbo dance of mortgage lending, rates managed to reach yet another low.



) -- In what has become a limbo dance of mortgage lending, rates managed to reach yet another low this week, with the most common type of mortgage debt costing borrowers less than 4.4% for the first time in history.

Freddie Mac


, the government-owned mortgage-finance giant, said Thursday that the average rate for traditional 30-year fixed mortgages fell to an average of 4.36%, the ninth decline over the past 10 weeks. Those loans have cost less than 4.5% since the beginning of August and less than 5% since early May.

Fixed mortgages with a 15-year duration also fell to a historic low of 3.86%. Less-popular adjustable-rate mortgages, which have shorter terms of one or five years, have remained relatively more stable and hovering near 3.5%.

The sharp decline in rates is a reflection of three factors: Ongoing stress in the housing market, regulatory policies aimed at spurring demand and an increasing belief on Wall Street that

deflation is nigh.

The week brought new negative news about home sales. The Census Bureau said on Thursday that new-home sales had reached a record in July, falling 12.4% to 276,000 units. That report followed the National Association of Realtor's shocking news on Monday that existing-home sales plunged 27% to the lowest rate in 15 years.

"As a result, long-term bond yields fell to the lowest levels since January 2009, allowing fixed mortgage rates to ease to new record lows this week," said Amy Crew Cutts, Freddie's deputy chief economist.

Cutts noted that a drop in sales was expected after the expiration of a tax credit in April. She also pointed out that prices appear to have stabilized somewhat, even though sales have fallen off a cliff.

Meanwhile, the federal government has been pushing banks to stem foreclosures and refinance loans for struggling borrowers. It has also been working to keep rates low via mortgage-backed securities purchases by Freddie and

Fannie Mae


, as well as the

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Federal Reserve's

historically low interest rate target of 0% to 0.25%.

Still, the cheap money has been

doing borrowers little good. Unemployment remains stubbornly high and household wealth has taken a beating as a result of the financial crisis, leaving fewer borrowers in a position to take advantage of low rates.

The combination of economic stress and dollar-printing to support federal programs has led to a less bullish view on interest rates in the near future. Until there are clearer signs of job growth and housing stability, mortgage lenders may keep shimmying lower under the pole.

--Written by Lauren Tara LaCapra in New York.

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