Mortgage Rates Dip Over Recovery Concerns

After holding steady over the past two weeks, key mortgage rates fell amid signs of a weakening economic recovery. The drop in rates comes after averages spiked by more than a percentage point since early May, and is attributed to monthly sales growth and production output that were far less than what was forecast.

The average rate on a 30-year fixed mortgage loan dropped 0.07 percentage point this week, according to the latest survey from mortgage buyer Freddie Mac. After hovering at 4.57 percent for two consecutive weeks, the 30-year fixed is now trending at 4.50 percent. That is a little more than a full percentage point higher than what it was at a year ago – 3.49 percent.

Despite the break, the average on a 30-year fixed rate mortgage has remained at or above the 4.5 percent threshold for the past five weeks. It previously hit its two-year high a month ago, when it climbed to 4.58 percent.

The average rate on a 15-year fixed mortgage loan also dropped, albeit slightly. The rate averaged 3.54 percent, a 0.05 percentage point drop from a week ago. The 30-year average is now 0.77 percentage point higher than it was a year ago.

Hybrid adjustable-rate mortgage averages are also on the decline. The average on a five-year ARM fell 0.11 percentage point this week, dropping from 3.22 percent to 3.11 percent. A year ago, it was at 2.76 percent. The one-year ARM saw a minor drop, ticking downward from 2.67 percent to 2.65 percent this week.

“Mortgage rates drifted downwards this week amid signs of a weakening economic recovery,” Freddie Mac chief economist Frank Nothaft said in a statement. “Retail sales rose 0.2 percent in August, which was nearly half of July’s 0.4 percent increase. In addition, industrial production in August grew 0.4 percent, less than the market consensus forecast. And lastly, consumer sentiment fell for the second consecutive month in September to the lowest reading since April.”

The recent setbacks, coupled with mixed job data, are part of the reason why the Federal Reserve has opted to “maintain its MBS and bond-buying program at its Deptember 12th and 13th monetary policy committee meeting,” said Nothaft.

Mortgage rates previously spiked in July due to speculation that the Federal Reserve would curb its bond-purchase program, massive stimulus policies involving $85 million worth of Treasury notes and mortgage-backed securities. The Federal Reserve indicated that it would maintain its bond-buying program at its current levels until employment numbers improved, which should push mortgage rates down in the future.

The National Association of Realtors also announced its Existing Home Sales report for August today. According to the report, home resales increased by 1.7 percent last month, which exceeded “analysts’ forecasts of a small decline in sales,” says mortgage expert Al Bowman. “The increase pushed sales to their highest level since February 2007, indicating housing sector strength that makes the data negative for the bond market and mortgage rates.”

Looking ahead, home buyers and owners looking to refinance will want to monitor the mortgage situation closely. In the latest Mortgage Rate Trend Index by, 82 percent of the analysts polled believe averages will either remain unchanged or trend downward over the next week, with 46 percent voting for the latter.

“All this talk about tapering and what did we get? The Fed chose not to taper and is letting the air out of the recent run-up in rates,” says FBC Mortgage planner Jim Sahnger. “We will have to see where things go from here but for now, enjoy the opportunity to get a lower rate if you have a loan in process and have not locked your rate.”

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