The biggest savings for shoppers this holiday season may be in home mortgages, thanks to a decline in interest rates spurred at least in part by the latest federal financial rescue effort.
But it's an open question whether consumers will actually want to take advantage of the cheaper loans -- or will be financially able to do so.
In Southern California, rates on 30-year, fixed-rate home loans for $417,000 or less have fallen to about 5.25% -- down about half a percentage point from a week ago -- for borrowers with strong credit and cash for down payments, mortgage brokers say.
Word of the lower rates came after the Federal Reserve on Tuesday announced a plan to purchase up to $600 billion of debt owed or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. The Fed's goal is to lower mortgage rates by reducing the borrowing costs of the government-backed mortgage finance giants.
Nationwide, average rates on 30-year, fixed-rate loans fell to 5.97% this week from 6.04% last week, marking the first drop below 6% since early October, Freddie Mac reported Wednesday. But this week's results are based on rates set Monday and Tuesday, so they probably don't fully reflect the Fed's announcement.
The action is designed to prop up the ailing housing market, but it comes at a time of year when the real estate market traditionally hibernates as many sellers take their homes off the market for the holidays.
Homeowners who want to refinance existing mortgages may be more likely to take advantage of the lower rates, but many people who bought during the real estate bubble won't be able to qualify for a new loan because they have little equity or are "upside down" -- owing more on their homes than they are worth.
"I anticipate it will increase refinance activity, but there will be nothing dramatic," said Terrin Griffiths, an economist for the California Credit Union League, which represents credit unions in California and Nevada.
Jeff Lazerson, a Laguna Niguel mortgage broker, said all the customer calls he received Tuesday were from people seeking to refinance, not buy homes. Many are trying to get out of adjustable-rate mortgages scheduled to reset to higher rates next year, he said.
But most who called were rebuffed because they were upside down on their current mortgages or had credit scores too low to qualify.
"Out of all the people calling, about 30% at most can get help," Lazerson said.
