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RISMEDIA, Jan. 17, 2008-(MCT)-Interest rates on the conventional 30-year fixed rate mortgage are at their lowest in more than two years despite a constricting mortgage market that has made it tougher for some borrowers to get the home loans they want. But so far, the super-low fixed rate hasn’t sparked a shopping stampede.

Investors reportedly are showing renewed interest in repossessed homes and pre-foreclosures, and many homeowners are calling about refinancing existing home loans, local real estate agents say. But would-be buyers in the Twin Cities are skittish about falling values and are sitting on their hands until the market strikes rock bottom, they say. Then there’s the holiday hangover that, one Realtor noted, can drag down January sales.

In other words, declining rates haven’t been enough to kick buyers off the fence yet. That’s a key frustration for Realtors who see opportunity in falling prices and very low rates and want to burn off the excess inventory clogging the market.

“I met with a loan officer yesterday, and he said, ‘Where is everybody?’ ” said Katie Draz, a Realtor with RE/Max Results’ Woodbury office.

The 30-year, fixed-rate mortgage averaged 5.87% for the week, according to Freddie Mac’s Primary Mortgage Market Survey released last Thursday. That’s down from 6.07% last week and significantly below the 6.21% average a year ago. It’s not that much higher than the low of 5.23% in June 2003 when the housing boom was at full steam.

Other key rates also fell from last week and a year ago. The 5-year adjustable-rate mortgage, for instance, averaged 5.63% for the week, down from 5.78% last week and 6.03% a year ago.

Plunging rates, which make homes more affordable, come even as lenders tighten underwriting terms and nix more exotic mortgage products following the subprime mortgage implosion — moves that make homes less affordable for some buyers.

“There’s conflicting issues going on,” said Steve Shea, owner of Sunset Realty in Maplewood.

The weak jobs report, higher unemployment and slowing service sector all played into the drop, Frank Nothaft, Freddie Mac’s chief economist, said in a note Thursday.

The 30-year fixed rate is falling because it tracks off the interest rate on the 10-year Treasury bill, a widely used barometer of economic sentiment. As with other bonds, the interest rate on the 10-year Treasury moves in the opposite direction of the price investors pay for it.

When investors bid up prices, the interest rate, or yield, falls. Treasury prices rise — and yields, or interest rates, fall — on weak economic data that suggest the Fed could cut interest rates to stimulate activity. Investors essentially are betting Fed rate cuts will make the existing return on the 10-year note a better deal.

Rates on the 30-year fixed may well drop further. With the economy teetering on the brink of recession — if not starting one already — the Fed is widely expected to cut the target federal funds rates again at its Jan. 29-30 meeting. In December, it lowered the target rate a quarter percentage point to 4.25% — part of three moves that collectively lowered the rate a full percentage point since September.

Copyright © 2008, Pioneer Press, St. Paul, Minn.
Distributed by McClatchy-Tribune Information Services.