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Mortgage Rates Drift to Lowest Point Since April 6
From a peak in July, mortgage interest rates continued to drift lower last week, according to Freddie Mac's Primary Mortgage Market Survey for the week ending on Aug. 31.
The average interest rate on a 30-year fixed-rate mortgage declined to 6.44%, down from 6.48% for the previous week, reaching its lowest level since the week ending April 6, when it averaged 6.43%. Last year at the same time, the average 30-year rate was 5.71%.
“Mortgage rates continued to drift lower this week in large part because of the cooling in the housing market and in consumer confidence, thus giving financial markets reason to believe that economic growth will moderate and inflation will remain in check,” said Frank Nothaft, Freddie Mac’s chief economist. “As a matter of fact, the 30-year fixed-rate mortgage is nearly 40 basis points lower than its peak of 6.8% in July of this year.”
One-year Treasury-indexed adjustable rate mortgages at the end of the last week in August were down a mere .01 of a percentage point from the previous week, averaging 5.59%, up from 4.48% a year earlier. ARMs were also at their lowest level since April 6, when they averaged 5.57%.
“By some indicators, personal incomes are growing faster than the cost of housing,” said Nothaft. “Combined with the still historically low mortgage rates, this will help to support the housing industry as it levels off from the record highs of the last few years.”
Prospective Buyers Psyched Out
Following a stronger-than-expected decline in existing home sales in July, David Lereah, chief economist for the National Association of Realtors®, said that the NAR’s Pending Home Sales Index for July, which is derived from contracts that have been signed and are awaiting closing, indicated that sales are likely to flatten out in the months ahead.
“We’ve never seen a general decline in the housing market against a healthy economic backdrop where jobs are being created, the economy is growing and interest rates are favorable,” said Lereah. “Psychological factors are causing some buyers to remain on the sidelines, waiting for prices to stabilize or for more favorable news about the market and the economy. Contributing to this hesitancy are a lot of negative news stories, but in the end we believe that underlying market fundamentals will prevail.”
Housing Slowdown Well Noted at the Fed
In the meantime, minutes from the Aug. 8 meeting of the Federal Open Market Committee released last week indicated that sentiments are fairly evenly divided at the Federal Reserve over whether more interest rate hikes are needed to curb inflationary pressures.
However, the decline in the nation’s housing industry was frequently cited during the meeting as evidence of the likelihood of an ongoing slowdown in economic growth. Single-family starts in June were “well below” the average of the previous 12 months, and sales of new and existing homes were significantly below their peaks of the summer of 2005. Also, there were indications of moderation in home prices over the past four quarters.
“In their discussion of the major sectors of the economy, participants noted that residential construction activity had continued to recede over the past few months and cited the housing sector as a downside risk to the outlook for growth,” the minutes said. It was noted that home sale cancellations had spiked higher, single-family housing starts and permits continued to fall and unsold inventories were on the rise, signs of continued slowing in this sector.
“Some participants observed that the slowing seemed to be orderly thus far,” the minutes said, “but it was also noted that in some areas of the country housing construction had experienced a relatively sharp fall. In general, participants expressed considerable uncertainty regarding prospects for the housing sector.”
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