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By Holden Lewis • Bankrate.com

Mortgage rates dropped to a historic low, but hardly anyone is getting a home loan.

The benchmark 30-year fixed-rate mortgage fell 13 basis points, to 5.06 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point.

That's the lowest rate on the 30-year fixed in the 24-year history of Bankrate's weekly mortgage index. Previously, the all-time low had been 5.13 percent, on April 1 this year. (In case you're wondering, the highest was 12.31 percent -- in the first-ever survey, conducted Sept. 25, 1985.)

The mortgages in this week's survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index was 6.33 percent; four weeks ago, it was 5.34 percent.

The benchmark 15-year fixed-rate mortgage fell 13 basis points, to 4.48 percent. That, too, is a record low. The benchmark 5/1 adjustable-rate mortgage was unchanged, at 4.58 percent. That's a record low dating back to when Bankrate started collecting 5/1 ARM rates at the beginning of 2005. And the benchmark 30-year fixed jumbo fell 29 basis points, to 5.95 percent. It was 5.6 percent in June 2003.

Despite the low rates, fewer homebuyers applied for mortgages last week than at any time since November 1997, according to the Mortgage Bankers Association. The MBA's purchase application index has fallen six weeks in a row to settle at that 12-year nadir.
Weekly national mortgage survey
Results of Bankrate.com's Nov. 19, 2009, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed 15-year fixed 5-year ARM
This week's rate: 5.06% 4.48% 4.58%
Change from last week: -0.13 -0.13 N/C
Monthly payment: $891.82 $1,260.55 $843.89
Change from last week: -$13.19 -$10.98 N/C

When you ask why there has been a collapse in homebuyer mortgage applications (and, you would assume, home purchases), one culprit comes to mind instantly: the first-time homebuyer tax credit. A couple of weeks ago, Congress extended the tax credit into next spring. But before that extension, the tax credit had been scheduled to expire Nov. 30. And to take possession of their homes by that date, mortgage borrowers had to sign purchase contracts by the end of October at the latest.

If people rushed to buy homes in October instead of making offers in November, it seems perfectly natural that there would be a lull in homebuying now. So will the homebuying spree resume now that the tax credit has been extended? Not necessarily. People in the mortgage industry are becoming gloomy, and they aren't counting on a surge of homebuyers.

Dick Lepre, senior loan consultant for Residential Pacific Mortgage in San Francisco, says that in the last six months, three of his clients lost jobs in the middle of the loan process. "Some of the downturn in applications is related to unemployment," he says.

Another factor that depresses mortgage borrowing: disrepair. Foreclosed homes are "selling for all-cash because the condition of the property is such that they cannot qualify for a loan," Lepre says. In other words, there's a chunk of houses that are available only to cash buyers and not to those of us who have to borrow.

On the other side of the country, "purchase business still seems to be flowing. But people are only willing to pay rock-bottom prices," says Brian Peart. Peart, president of Nexus Financial Group, a mortgage brokerage in Atlanta, says he sees "downward pressure on (house) prices for many years to come" because of rising foreclosures and unemployment.
Waiting for the 'urgent call'?
Just about everyone in the mortgage business expects rates to rise over the next four months, as the Federal Reserve winds up its purchases of more than a trillion dollars in mortgage-backed securities and investors take up the slack. The thinking goes that private investors will demand higher interest rates on mortgages than the Fed requires.

Barry Habib, publisher of Mortgage Market Guide, an industry online publication, expects rates to rise in "stepladder" fashion from around now through March. Rising rates, he believes, will provoke more homebuying. Right now, he says, there's no "urgent call" to buy houses because rates have remained so low for months.

"In the absence of an urgent call, people are focusing on Thanksgiving plans and holiday shopping and their lives," Habib says. "But as soon as rates go up, people will get out there and say, 'I'd like to purchase or refinance.'"

Habib's point sounds counterintuitive, but experience backs him up. Throughout this decade, there has been a spike in mortgage applications whenever rates have abruptly risen after remaining fairly steady for a while. It's human nature, Habib says, for borrowers to jump off the fence when rates rise. Hardly anyone gets a loan at the lowest rate in the cycle; people get loans at slightly higher rates once it becomes clear that rates have bottomed out and are heading back up.

Habib believes that home sales will increase in the spring, and rising rates will be a bigger reason than the expiration of the homebuyer tax credits.

But buyers should be cautious, Lepre warns: "The only people who really, really should be buying are a couple who have steady employment and see an opportunity to buy a home for much less than they could three years ago," he says.

If you're in the market for a mortgage or refinance, you can look for the best interest rate by searching Bankrate's rate tables.