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Mortgage rates fall to record lows. Time to buy?

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Seth Perlman/AP

(Read caption) Sales of existing homes, like this one in Springfield, Ill., are looking more attractive as mortgage rates hit record lows. But home prices could keep falling, experts say.

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By any measure, homebuyers are seeing the lowest mortgage rates in more than two generations.

So is it time to buy?

It's surely tempting. This week, the average rate was 4.56 percent for a 30-year fixed loan and 4.03 percent for a 15-year mortgage, loan purchaser Freddie Mac reported Thursday. Those are record lows since Freddie Mac began tracking them.

Using a different survey, Bankrate.com also found record lows for the average 15-year fixed mortgage (4.18 percent) and the 30-year jumbo fixed loan (5.43 percent). The rate for a 30-year fixed mortgage this week was tied with the record established two weeks ago, the online aggregator of financial rate information reported.

Experts say these rates are the lowest since 1956, although comparisons are difficult because the mortgages back then were slightly different.

Even at historic lows, mortgage interest typically makes up a large part of a home purchase. A $250,000 30-year fixed mortgage at this week's average 4.56 percent would cost a homeowner a total $459,230 after 30 years.

More important is the cost of the home itself. Even a small price break can make a big difference in the total cost of a home. If the example above involved a $300,000 home, a 3 percent reduction in the price would reduce the cost after 30 years by more than $16,500.

Interest rates would have to fall by another one-third of a percentage point to equal that discount.

Of course, real estate prices have plunged already, but they could fall a bit more, some analysts say.

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"The continuing double-dip in housing market activity has yet to translate into a double-dip in prices, but this is only a matter of time," writes Paul Dales, an economist with Toronto-based research consultancy Capital Economics, in an analysis. "By the end of next year, we think that house prices will be at least 5 percent below current levels."

Other analysts foresee a 10 percent dip, which means buyers can afford to be choosy before they commit to their next home.

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