Good News For Home Buyers: Mortgage Rates Near 50-Year Low

Hope for the American housing market as rates drop.

May 24, 2010— -- Today mortgage interest rates are near the lowest level in 50 years . At the same time, existing home sales today showed a big jump in sales (

So is it time to buy a house?

As it turns out, the financial trouble in Europe the past few weeks, caused by worries about the ability of certain countries to pay off their debts, is pushing investors to put their money into comparatively safe U.S. Treasury Bonds.

Basically, investors think America is better positioned to pay back its debts over time than European countries. Since the rates on those bonds, which drop as the need to entice investors to buy our debt drops, are connected to mortgage rates, those drop at the same time.

"Whenever Treasury bonds come down, so do mortgage rates," Diane Swonk, Chief Economist at Mesirow Financial, told ABC News.

Yet, for months, homeowners have been told higher mortgage rates were coming because of the trillions of dollars in federal help, and homebuyer tax credits were coming to an end.

Economists say those efforts appeared to have an effect on the housing market.

Sales of previously-owned homes rose 7.6 percent in April to a seasonally-adjusted annual rate of 5.77 million, the National Association of Realtors said Monday.

That increase led to a rise in home prices as the median price for a new home rose to $173,100, up 4 percent from a year ago.

Will you Get a Loan?

Even though rates are dropping, lenders, who just five years ago could not give mortgages away fast enough, have stiffened lending standards.

"It doesn't make it any easier to get a mortgage, but if you're in the market already, and you can qualify for a mortgage, you're going to get it a lot cheaper now than you did just a few weeks ago," said Swonk.

The good news is that even a small drop in mortgage interest rates can add up quickly. If you take a home valued at $400,000 with a 30-year fixed-rate mortgage, a one-point decline in your mortgage rate can cut about $200 off what you pay ever month.

Economists are hopeful the month-to-month jump in existing home sales might be sustained by this unexpected boost driven by worried overseas investors helping to bring mortgage rates down.