Mortgage Loan Rates Drop Again. But What's the Future for the Housing Market?

Lowest Mortgage Rates Ever on the Way?

Back in April, the cost of a 30-year, fixed-rate mortgage loan touched 4.78%--twice. Yesterday, Freddie Mac's mortgage tracking service revealed that this week--after a rate drop--the same loan would be 4.98%.

That means that today loans are just 0.20% off the lowest mortgage rates ever. And, if the downward trend continues, some new records could be set very soon.

Mortgage Loan and Refinance Rates Set to Stay Steady

But vanishingly few economists expect rates to go down much, or stay down long. In fact, the consensus seems to be the opposite: that rates will bob around the 5% mark for a while, and then very, very slowly rise to something close to 6%.

Of course, it would be understandable if--on the 'fool me once...' principle--you chose not to believe a word that any economist says. And, on that basis, the received wisdom of virtually the entire economist community should be viewed even more skeptically.

Best Mortgage Deals Are Now. Don't Delay

But it's hard to see how rates could go much lower than that 4.78% record in April. After all, the Fed's had a close-to-zero rate for a while now.

So if today's mortgage rates are unlikely to drop much, and there's a real chance that they'll rise a bit, then now is the time to act. Check out the best mortgage and refinance deals here.

Is Housing Recovery Sustainable?

According to today's Washington Post, $121 billion of taxpayers' money has been poured into Fannie Mae and Freddie Mac in the 14 months since they were seized by the government. The last tranche of that--some $15 billion--was requested by Fannie Mae just this week, after it reported a loss of $19 billion in the third quarter of 2009.

Those are huge sums of money to prop up the housing market.

Homes Afloat While Underwater

In its third-quarter results, published yesterday, Fannie Mae says:

Our volumes under the Home Affordable Modification Program increased in the third quarter, with approximately 189,000 Fannie Mae loans... either in a trial modification period or having completed modification as of September 30, 2009...

On October 8, 2009, Treasury announced that, as of September 30, 2009, approximately 487,000 loans were in a trial period or a completed modification under the Home Affordable Modification Program.

During the third quarter of 2009, we acquired or guaranteed approximately 626,000 loans that were refinances.

That's hundreds of thousands of homes that would have flooded the market as foreclosures had Fannie, Freddie, and Ginnie not existed.

It may be hard to stomach the costs of government interventions in the housing market, but it's even harder to see an alternative right now. The question is: how long can it go on?

And what will happen when it stops?