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Mortgage rates dip to lowest in three years: good news for homebuyers?

A record decline in the US for the average rate for a 30-year mortgage comes amid declining homeownership and a middle class that is increasingly migrating to either upper or lower income groups.

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    This photo from 2011 shows a home for sale in Mount Lebanon, Pa. The average rate for a 30-year mortgage dropped to 3.57 percent this week, the lowest level in three years, mortgage buyer Freddie Mac said Thursday.
    Gene J. Puskar/AP/File
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Rates for longterm mortgages in the US continued dropping this week, likely an encouraging sign for people considering buying a home.

The average 30-year fixed-rate mortgage dipped to 3.57 percent from 3.61 percent last week, reaching a three-year low, the mortgage buyer Freddie Mac said Thursday. For 15-year mortgages, the average dropped to 2.81 percent from last week's 2.86 percent.

But the numbers come as the number of middle class Americans – for whom owning a home was long a symbol of success – has been steadily declining for more than a decade in urban areas, while home ownership rates have dipped significantly since the 2008 financial crisis.

Meanwhile, the share of income many Americans pay in housing costs has also increased, dramatically in some cases, in the past 15 years.

The percentage of Americans living in a middle-income household fell from 55 percent in 2000 to 51 percent in 2014, according to a study released Thursday by the Pew Research Center.

The low mortgage rates are also impacted by a mixed jobs picture. "Disappointing April employment data once again kept a lid on Treasury yields, which have struggled to stay above 1.8 percent since late March," said Sean Becketti, chief economist of Freddie Mac, in a statement. "Prospective homebuyers will continue to take advantage of a falling rate environment that has seen mortgage rates drop in 14 of the previous 19 weeks."

Increasingly, Americans are migrating across class lines, into either upper-income or lower-income brackets, Pew found, a trend that's impacted by decreasing wages and growing levels of wage inequality between the wealthiest Americans and the 99 percent.

"Because of the economic downturn, employment took a huge hit, and there is still a fair amount of slack in the labor market, [which is] going to keep income on the lower side," Rakesh Kocchar, Pew's associate director of research, told The Christian Science Monitor.

Despite the changing economic circumstances, particularly for younger Americans, aspirations to own a home haven't diminished, writes The Daily Beast's Joel Kotkin:

"Millennials may be staying in the city longer than previous generations, but their long-term aspirations remain fixed on buying a single-family house," he writes. "This trend will accelerate in the next few years, suggests economist Jed Kolko, as the peak of the millennial population turns 30."

But these low rates have sparked only a slight increase in mortgage applications, according to the latest data from the Mortgage Banker's Association.

Sky-rocketing rents, which have forced many middle-class and low-income families out of urban areas, would seem to make buying a house a more attractive option.

Low-income renters spent nearly 50 percent of their income on rent in 2014, a Pew analysis of government data found, while low-income families who owned their homes spent nearly 20 percent. A year earlier, by contrast, those renters spent just over 30 percent of their income on housing.

For middle-income families, who spent 25 percent of their income on housing regardless of whether they owned or rented a house in 2014, the distinction wasn't as dramatic, though middle-income owners spent less of their incomes than renters.

Some mortgage companies have particularly tried to seize on this trend, with Quicken Loans airing an ad during this year's Superbowl with the slogan "Push Button, Get Mortgage" that some argued was reminiscent of pre-2008 home-lending practices.

Executives from Quicken dismissed those concerns. "I don't see any harm in those who qualify getting a mortgage more easily," Quicken Loans President Jay Farner told CNET in January. "We think the American dream is an important thing. And our research tells us it's an important thing. All we're trying to say is, that's good."

But the advantages could be outweighed by other factors, notes The Guardian's Suzanne McGee in the US money blog:

More than any other single factor, what anyone wrestling with the buy v rent decision needs to ponder is the extent to which they are stable… That’s because while a house purchase can make sense – even tenuously – when you run the math, it may still not be wise when you examine life circumstances.

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