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Cheaper oil could fuel a drop in mortgage rates

Consumers are finding another upside in tumbling oil prices: lower mortgage rates.

While indirect, there's a link between the steep slide in crude and current super-low mortgage rates. Concerns of a slowdown in global growth have partly pushed down oil prices, and those fears have also pushed down yields on longer-term Treasurys, to which mortgage rates tend to closely follow.

"The oil collapse of 2014 appears to have been a key driver" of the decline in mortgage rates, according to a report from Bank of America Merrill Lynch mortgage-rate strategist Chris Flanagan. "Further oil price declines could lead the way to sub-3.5% mortgage rates."

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That would take rates close to where they were in 2012 and early 2013, when the Federal Reserve was buying up bonds to spur economic growth. But mortgage rates then increased to almost 4.5 percent in January, thanks to concerns about the potential for the Fed to raise rates and how it would exit its bond-buying program.

So, will lower rates help strengthen the real estate market and spur more consumers to jump into home ownership? So far, the evidence doesn't show a rush to buy homes.

Even though rates were at their lowest since May 2013, mortgage application volume decreased 3.3 percent on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association.

Still, a decline in mortgage rates might spur more people to buy, Flannigan wrote.

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"We have maintained the view that 4 percent mortgage rates are too high to allow for sustainable recovery in housing," he wrote, adding that a drop to the 3.25 percent to 3.5 percent range could increase "supply from both refinancing and purchase mortgage channels."

Despite the lower rates, some real estate markets may be unaffordable for many would-be buyers, a trend that could continue in 2015, according to real estate site Trulia. Sharply rebounding home prices mean there are "fewer bargains and scant room for prices to rise without becoming overvalued," Trulia chief economist Jed Kolko told the National Mortgage Professional.

About 21 percent of housing markets are now less affordable than their historic average, thanks to rebounding prices, RealtyTrac found in a study earlier this month. However, the study also found that prices overall are still below the peak of the housing bubble.

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