Freddie Mac reported today that the average rate on 30-year fixed mortgages fell to 4.09% this week, down from 4.12% last week, and the lowest rate since the early 1950s (see top chart above, news report here). The 15-year fixed rate fell to 3.30% this week from 3.33% last week, setting a new all-time record low (see bottom chart above).
To purchase a median priced existing home at $174,000 (most recent data available is for July) with a 20% down payment, the monthly payments at 4.09% would be $671.80. In 2008, when the median priced home averaged $198,100 and the 30-year mortgage rate averaged 6.04%, the monthly payments (with 20% down) would be $954.25, or 42% higher than the current monthly payment of $671.80.
With rates so low, and home prices stable or falling, there's probably never been a better time to buy or refinance a home. With annual inflation of 3.8% through August, getting a 4.09% 30-year fixed rate mortgage is basically "free money" at close to a 0% real rate (assuming inflation remains at 3.8%). If you lock in at 4.09% and inflation rises above that rate for some part of the next 30 years, you'll have a negative real rate of interest and you'll pay back less in real dollars than the amount you borrowed - the best of all possible worlds for a borrower.
If you can borrow $100 and pay back $98 in inflation-adjusted dollars, you're getting paid by the bank to be in debt. In that case, it's just like a "negative price" for goods, where you get free merchandise and some cash on the way out of the store - the ideal outcome for consumers.
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