The extraordinary measures the Fed has taken to reduce long-term mortgage rates may have hit their limits. Lenders are now quoting an average rate of 4.75% on 30-year fixed-rate mortgages, and that’s probably as cheap as it’s going to get, says James Hagerty of the Wall Street Journal. With homeowners banging down the doors to refinance at those already historically low rates, banks would rather expand margins rather than deepen discounts.
“If lenders are working people overtime to close loans, they don't have an incentive to compete too hard on price,” explained one researcher. It’s an uncomfortable situation for the government, which wants to drive rates down, but also wants banks to return to profitability. Even if mortgage costs don’t fall further, the Fed’s efforts should at least help stabilize the housing market, experts say.