Rates Stop Climbing, With 30-Year Loans Falling to 5.38%

Here’s an interesting article from the Washington Post News Services Saturday, June 20, 2009

Rates for 30-year home loans fell back this week after soaring to the highest level in seven months the previous week.

The average rate for a 30-year fixed mortgage was 5.38 percent this week, down from 5.59 percent a week earlier, Freddie Mac said. Rates had risen for three consecutive weeks after yields on long-term government debt, which are closely tied to mortgages rates, climbed as investors worried that the huge surplus of government debt hitting the market could trigger inflation.

But data released Wednesday suggested that inflation remains largely in check, and the yield on the 10-year Treasury note fell from an eight-month high of 4.01 percent last week to 3.81 percent on Thursday.

Though there are signs that the troubled U.S. housing market is beginning to stabilize, higher rates could threaten or slow any recovery because consumers would be able to borrow less money and might decide to hold off on their purchases. The three-week run-up in rates ‘is starting to slow homebuyer demand, at least temporarily,’ Frank E. Nothaft, Freddie Mac’s chief economist, said in a statement. There are still signs that the housing market isn’t improving. U.S. home prices may fall another 14 percent before reaching a bottom as an increase in unemployment offsets lower prices, Deutsche Bank said in a report this week. ‘Getting the right level of rates is going to be a difficult process,’ said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla. ‘We’re going to see some choppiness in the bond market.’

Mortgage applications for home purchases fell 3.5 percent for the week ending June 12, according to the Mortgage Bankers Association, while refinancing applications were down 23 percent from a week earlier. ‘You’re seeing the refi applications down substantially,’ Brown said. ‘You’re going to price a lot of people out of the market.’ The average rate on a 15-year, fixed-rate mortgage fell to 4.89 percent from 5.06 percent last week, according to Freddie Mac. Rates on five-year, adjustable-rate mortgages averaged 4.97 percent, down from 5.17 percent. Rates on one-year, adjustable-rate mortgages fell to 4.95 percent from 5.04 percent. Borrowers can reduce their interest rates by buying points, which each cost one percent of the loan amount. The nationwide average was 0.7 point last week for 30-year and 15-year mortgages and 0.6 point for five-year and one-year adjustable-rate loans.