# Why are mortgage rates not dropping? **URL:** \ **Category:** Factual Questions\ **Created:** [December 17, 2008, 12:01am UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483 "2008-12-17T00:01:10Z")\ **Posts on this page:** 13\ **Page:** 1
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [December 17, 2008, 12:01am UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/1 "2008-12-17T00:01:10Z")
Disclaimer - I understand that some mortgage rates are dropping a little. When I bought my house in October 2005, the economy was doing OK, and the best rate I found was 5.2% on 30-year fixed. Now the fed funds rate is near zero, and still as I look around, I don’t see very much below 5.6%. I don’t expect a direct variation, but how can it be that everything has gone to hell in a shithole yet the rates are still higher than they were when the economy was stable and on the uptick? ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [December 17, 2008, 1:05am UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/2 "2008-12-17T01:05:27Z")
A few reasons come to mind: [ul] [li]Less credit: Though the federal rates are low, the credit markets are still quite timid, which means less capital available to banks who want to lend[/li][li]Less demand: far fewer people are buying or refinancing houses[/li][li]Less supply: Lots of banks and lenders have folded; those that haven’t are significantly scaling back their retail lending[/li][li]The failure of Fanny and Freddie introduces some doubt about whether lenders will be able to easily sell their debt, making lending riskier[/li][li]Rates are never likely to go much below 4 or 5 per cent anyway, because they can probably make that much just buying treasuries instead[/li][/ul] ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [December 17, 2008, 1:12am UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/3 "2008-12-17T01:12:54Z")
I don’t understand your comment about lower demand. Lower demand should mean a buyer’s market, with the cost to the borrower decreasing. I also don’t understand the comment about treasuries. They’re investments, of course, but when you need a place to live you can’t move into a T-bill. The part about lower supply does make sense… maybe it’s balancing out the other factors. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [December 17, 2008, 1:24am UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/4 "2008-12-17T01:24:40Z")
> [@Cosmic Relief](#): > > I don’t understand your comment about lower demand. Lower demand should mean a buyer’s market, with the cost to the borrower decreasing. Yeah, but if demand _and_ supply are reduced, prices will stay (roughly) the same. This is one possible reason why there hasn’t been much change in mortgage rates. > [@](#): > > I also don’t understand the comment about treasuries. They’re investments, of course, but when you need a place to live you can’t move into a T-bill. You can’t, but your bank can. If mortgage rates get too low, lending to the gummint looks more attractive than lending to you. ---
**Author:** ![dtilque](https://avatars.discourse-cdn.com/v4/letter/d/d6d6ee/32.png) [@dtilque](https://boards.straightdope.com/u/dtilque)\ **Post date:** [December 17, 2008, 7:21am UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/5 "2008-12-17T07:21:10Z")
There was a news report not too long ago that in a just-concluded Treasury auction, the rate actually went slightly below zero for a while, but later edged back slightly above zero. By slightly, I mean about .01 %. So T-bills are essentially not paying any interest at all these days. So T-bills are not a better return than a mortgage, although many financial institutions are investing in them (T-bills) anyway, just so they can show a rock-solid, conservative portfolio to their boards of directors. The proximate answer is that banks are in a conservative mood these days. Mortgages are seen as risky, so they aren’t aggressively attracting them with lower interest rates. Instead, they’re putting their money into stable investments such as [Bernard L. Madoff Investment Securities](http://www.huffingtonpost.com/2008/12/11/ponzi-scheme-madoff-charg_n_150401.html). ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [December 17, 2008, 12:16pm UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/6 "2008-12-17T12:16:36Z")
Thanks all. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [December 17, 2008, 12:22pm UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/7 "2008-12-17T12:22:57Z")
Note that there is overhead in managing a mortgage as well as having to pad the rate to take into account covering defaults. The latter is of course a big issue nowadays. No doubt they are also worried that inflation might spike sometime down the road. (15-30 years is forever in financial terms.) So you’re not going to get a 2% mortgage. ---
**Author:** ![Athena](https://avatars.discourse-cdn.com/v4/letter/a/35a633/32.png) [@Athena](https://boards.straightdope.com/u/Athena)\ **Post date:** [December 17, 2008, 1:05pm UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/8 "2008-12-17T13:05:06Z")
I’ve been looking into refinancing, and they _are_ dropping. I’m wanting a 30 year at 5-5.25% with no points, and it’s looking like it’s getting there. Was the 5.2% you were quoted in 2005 without any points? I’m not exactly a financial wizard, but I’ve never seen rates this low before. ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [December 17, 2008, 1:26pm UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/9 "2008-12-17T13:26:52Z")
> [@Athena](#): > > I’ve been looking into refinancing, and they _are_ dropping. I’m wanting a 30 year at 5-5.25% with no points, and it’s looking like it’s getting there. > > Was the 5.2% you were quoted in 2005 without any points? I’m not exactly a financial wizard, but I’ve never seen rates this low before. It was between 5.2 and 5.3% with no points. I didn’t take it because the lender struck me as a bit shady. What I actually ended up getting elsewhere was 5.375% on a 30-year fixed with no points. I don’t see that anywhere now, but maybe I’m not looking hard enough. ---
**Author:** ![Athena](https://avatars.discourse-cdn.com/v4/letter/a/35a633/32.png) [@Athena](https://boards.straightdope.com/u/Athena)\ **Post date:** [December 17, 2008, 3:58pm UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/10 "2008-12-17T15:58:15Z")
[Wells-Fargo](https://www.wellsfargo.com/mortgage/rates/) is quoting 4.875% for 30 year fixed right now. That’s with 1 point, so I’m guessing it’s slightly higher if you don’t want to pay the point. ---
**Author:** ![Raza](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/raza/32/213_2.png) [@Raza](https://boards.straightdope.com/u/Raza)\ **Post date:** [December 17, 2008, 4:24pm UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/11 "2008-12-17T16:24:35Z")
Yesterday I locked in at 5.125% with about a 1/3 pt origination fee. Now that I’m locked, I’m fully expecting rates to go even lower. ---
**Author:** ![Athena](https://avatars.discourse-cdn.com/v4/letter/a/35a633/32.png) [@Athena](https://boards.straightdope.com/u/Athena)\ **Post date:** [December 17, 2008, 11:30pm UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/12 "2008-12-17T23:30:27Z")
I just locked in for a 30-year fixed rate at 4.75%, paying 1 point. I never thought I’d see a rate that low. ---
**Author:** ![Tastes\_of\_Chocolate](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tastes_of_chocolate/32/3232_2.png) [@Tastes\_of\_Chocolate](https://boards.straightdope.com/u/Tastes_of_Chocolate)\ **Post date:** [December 18, 2008, 7:01pm UTC](https://boards.straightdope.com/t/why-are-mortgage-rates-not-dropping/477483/13 "2008-12-18T19:01:14Z")
After seeing this thread, I called up the banker I’ve used for my mortgages. He says that currently for a 30year fixed, non-jumbo, 25% down mortgages, I’d be looking at 4.5% to 4.75%, with 1% origination fee. Hmm. Might be time to refinance.