US mortgage loan rate on the 30-year fixed mortgage fell to 3.99% last week according to Freddie Mac. This is the second time in history it fell to below 4%.
The 30 year fixed mortgage is unique to the US where the mortgage interest rate is fixed for 30 years. For the mortgage borrower, this is great because the carrying cost of financing a property here in the US is fixed. While over time, the property price and rental income increases. In most other countries, the mortgage loan rate is variable, which means it fluctuates with the overall interest rate environment.
For example, in the US, a 30 year fixed rate at 4% means that over the life of the mortgage, the rate remains at 4%. While in (for example) Hong Kong, the mortgage may be 3% today but may increase to 5% next year and 10% in 5 years if the interest rate environment increases.
While the 30 year mortgage in the US is now 3.99%, it was 6.5% five years ago and above 8 percent ten years ago.
Refinancings have increased as homeowners take advantage of the low rate. However, US-wide, the low rate did not spur buyers who are still concerned about declining wages and high unemployment.
A prime market like New York has been seeing increased transaction activity from the low rates. Reason is that the drivers for New York - demand from foreign buyers, weak US dollar, highly paid jobs - are very different from rest of the US. In 3Q'11, number of transactions increased 16.7% compared to a year ago. The absorption rate, which measures how many months it takes to sell available inventory, is now at 7.5 months, decreasing 18.5% compared to a year ago.
Wei Min Tan in Managing Director of Castle Avenue Partners, focusing on foreign buyers interested in buying Manhattan, New York property. He has appeared on CNN, New York Times and the Wall Street Journal on the topic of foreign buyers of Manhattan property. Wei Min speaks Cantonese Chinese, Malaysian and conversational Mandarin. He can be reached at firstname.lastname@example.org