Interest rates for home loans are down again, for the 10th time in 11 weeks, and there's a good chance they haven't hit bottom.

Freddie Mac reported the nation's average fixed interest rate (FRM) on 30-year mortgages slipped to 5.56 percent, down from 5.62 percent a week ago. The rate hasn't been that low since April 1, 2004 when it averaged 5.52 percent.

The 15-year FRM was also down to 5.14 percent, five-year adjustable rate mortgages (ARMs) fell to 5.01 percent and the one-year ARM dipped to an average 4.21 percent.

Freddie Mac says because interest rates have fallen since its last forecast it lowered its forecast for long term rates approximately 10 basis points or 0.10 percent. It now projects 30-year, fixed-rate mortgages will average 5.9 percent this year and 6.2 percent in 2006.

Only slightly less bullish, David Lereah, the National Association of Realtors' chief economist says the 30-year fixed-rate mortgage should rise slowly to only 6.1 percent in the fourth quarter, and reach 6.5 percent by the end of 2006.

"Not only have mortgage interest rates declined, but an expected rise in the second half of the year will be slower than in earlier projections," he said.

So far this year, rates have averaged about 5.75 percent, giving them plenty of room to move lower based on forecasts for a period with more than six months remaining.

A growing number of bond managers agree.

Long term mortgage rates, including those on 30-year mortgages, are largely determined by the yield on the 10-year Treasury bond. When the yield falls, so do long term mortgage rates.

Last June, when the Federal Reserve's benchmark short-term rate was 1 percent, the 10-year bond yield was 4.69 percent and the average 30-year mortgage rate was 6.25 percent.

Since then, the Fed has raised the benchmark rate, which is charged on overnight loans between banks, to 3 percent and indicated they plan to move it higher to keep inflation in check. Financial experts are not sure why, but as the benchmark has risen, the 10-year yield has fallen, at times below 4 percent.

Interest rates on 30-year mortgages peaked this year at 6.04 percent on March 31, and have been trending downward ever since, Freddie Mac reported.

Merrill Lynch's interest-rate committee head, chief economist David Rosenberg, on May 25 lowered his firm's yield forecasts, projecting the 10-year Treasury would yield 3.8 percent by year's end. In another about face, Morgan Stanley's chief economist, Stephen S. Roach, recently said that the yield could fall as low as 3.5 percent by next year. Citigroup also lowered its forecast, but left it higher, at 4.5 percent.

"As a result, we now expect to set records for both existing and new home sales this year," said Lereah.

The real estate industry is banking on lower rates to muster home sales and recently announced home sales will top 8 million this year, the fifth consecutive record. Falling mortgage rates bolster demand, says the 1-million-member association.

The breakdown reveals that sales of existing single-family houses, condos and co-ops will rise 1.6 percent to 6.89 million from 6.78 million last year and new home sales will climb 3.2 percent to 1.24 million, according to NAR's projections.

Because many home owners have already refinanced with rates at or near the 5.5 percent level, should rates fall lower, that could set off another round of refinancing, which slowed earlier this year when interest rates hovered closer to 6 percent.

How low can rates go?

That's anybody's guess.

The record since Freddie Mac has been keeping tabs occurred for two weeks in 2003 when rates slipped to 5.21 percent.

Published: June 10, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.