Mortgage rates at record lows. Will that finally lift US housing market?

Record-low interest rates on mortgages are one outcome of debt-ceiling deal. But they are just one piece of recovery for the housing market, which is beset by falling prices and high jobless rates.

Danny Johnston/AP
In this July 13 photo, a pending sale sign is displayed in front of a home in Little Rock, Ark.

One bit of positive fallout from the debt-ceiling deal reached earlier this week: Mortgage rates have fallen to levels that are at or near record lows.

That's a boost for the US housing market, which is still struggling to recover from the after-effects of an epic boom and bust.

Interest costs on a 30-year fixed-rate mortgage averaged just 4.39 percent this week, according to housing-finance giant Freddie Mac. That's the lowest level this year, and down from 4.55 percent a week earlier. (Those interest rates are for loans in which the borrower also pays a "points" fee of about 0.8 percent of the amount to be borrowed.)

Meanwhile, 15-year fixed-rate loans and 5-year adjustable rate loans hit record-low levels of 3.54 and 3.18 percent, respectively.

Mortgage rates have fallen in recent days because of the debt deal -- which averted a feared scenario in which the US Treasury ran out of funds to pay all its bills. That could have sent ripples of unrest through financial markets, pushing up interest rates throughout the economy.

So the good news for potential homebuyers is that the worst didn't happen, and that mortgage rates have actually fallen a bit as a deal was reached.

Rates may have also come down for other reasons, such as signs of weakness in the US economy, which in turn postpones the day when interest rates will start rising back toward more typical levels. Also, fresh concerns about government debts mean firmer demand for US Treasury bonds as a comparatively safe alternative.

Low mortgage rates, however, are just one building block for a recovery in the US housing market. Many forecasters continue to warn that interest rates could start rising later this year and into next year, perhaps as high as 5.5 or 6 percent on a 30-year loan.

Basic problems in the market include downward pressure on home prices, which has made some would-be buyers hesitant and is also a factor behind cautious appraisal values that are causing many home-sale deals to fall apart at the last minute. A weak job market also contributes to slack demand for homes. Meanwhile, supply of homes is comparatively strong, the result of a high level of foreclosures.

Also, although interest rates are low, many lenders are being stringent when it comes to deciding who can get a loan.

Some housing analysts say a healthier market is starting to appear on the horizon, although slowly. The pace of borrower delinquency and foreclosures has been declining in recent quarters, and even a modest improvement in the job market (which many forecasters expect) could help to end declines in home prices.

Other economists say the recovery process still has a long way to go.

"Our view that the housing recovery, which has yet to begin in earnest, will be bumpy and prolonged," writes Michelle Meyer, an economist at Bank of America Merrill Lynch. "The path will largely depend on the health of the economy, particularly the labor market."

Still, for now, attractive mortgage rates have helped to make the typical single-family home very affordable by historic standards.

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