Mortgage rates are determined largely based on demand for investment in mortgage backed securities, in comparison too other investment alternatives. The weak economy, and weak investment opportunites are making, and keeping interest rates at all time lows. Here is an explanation from IrvineRenter.
A good news-bad news scenario continues on the housing front, with mortgage interest rates dropping again to record lows, according to the latest survey by home-loan buyer Freddie Mac.
The bad news: With the winding down of government stimulus programs, even fewer people are taking advantage of the eye-popping rates to buy homes.
Mortgage interest rates are determined by supply and demand like prices in any market. Right now, there are few investment opportunities in our moribund economy, so money is seeking the low risk of government-backed mortgages. Since the GSEs now carry the full faith and credit of the US government, GSE mortgage-backed securities are no different than 10-year Treasuries. Since yields on those securities have dropped below 3%, it is not surprising that money would seek a higher yielding alternative.
