Mortgage rates fall below 4 percent; housing market continues recovery

This time last year, the rate averaged 4.86 percent. 

Freddie expects 30-year, fixed mortgage rates to gradually increase throughout the year to about 4.5 percent, according to a report released Wednesday.

The 15-year fixed rate also dropped this week to 3.23 percent from 3.3 percent. 

Nothaft said several factors contributed to the interest rate drop: the S&P/Case Shiller 20-City Composite home price index slid in January to its lowest reading since December 2002, new home sales declined 0.5 percent in February and pending existing home sales also declined for the month.

In a March economic and housing report released Wednesday, Freddie Mac acknowledged that the housing market is emerging from the doldrums and is making gradual improvement toward recovery. 

The report showed that stronger economic growth will eventually translate into a lower unemployment rate — it was 8.3 percent in February. 

"As if awakening from hibernation, housing starts and home sales moved to higher, albeit still very low, levels of activity," Nothaft says in the report. 

Housing starts averaged nearly 700,000 during the November-February period, up 19 percent from the pace over the prior 12 months. 

That has led to rising homebuilder confidence, which hit its highest level in March since June 2007. 

With stronger economic growth, home sales and originations forecasts have been revised upward, the report said. 

Also, new rental construction for the year will probably at its highest since 2005, if the current pace is maintained.

Even with a 1 percent dip in new and existing homes sales in February, median sales prices moved up 0.3 percent on a year-over-year basis, a hint that home values may be stabilizing in more markets around the nation, the report said.

"The housing market continues to struggle amid strong economic headwinds," Nothaft said. "However, a variety of encouraging indicators suggest that the housing market may be feeling a nascent recovery, and more neighborhoods may see a stabilization in overall demand and housing values this spring."

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