Mortgage rates mixed as Fed cuts
| | By Holden
Lewis • Bankrate.com |
|
On the day that the Federal Reserve cuts short-term
interest rates, you'd expect mortgage rates to fall, right? They
did -- but just barely.
The benchmark 30-year fixed-rate mortgage fell 2 basis
points, to 6.29 percent, according to the Bankrate.com national
survey of large lenders. A basis point is one-hundredth of 1 percentage
point. The mortgages in this week's survey had an average total
of 0.38 discount and origination points. One year ago, the mortgage
index was 6.31 percent; four weeks ago, it was 6.42 percent.
The benchmark 15-year fixed-rate mortgage fell 1 basis point, to
5.99 percent. The benchmark 5/1 adjustable-rate mortgage rose 10
basis points, to 6.22 percent.
 |
| Weekly
national mortgage survey |
|
| This week's rate: |
6.29% |
5.99%
|
6.22%
|
| Change from last week: |
-0.02 |
-0.01
|
+0.10
|
| Monthly payment: |
$1,020.23 |
$1,391.47
|
$1,012.72
|
| Change from last week: |
-$2.15 |
-$0.89
|
+$10.70
|
Why didn't the Fed rate cut
cause mortgage rates to fall? It has to do with what's going on
with the economy.
Even though the residential construction, real estate and mortgage
industries are going through a recession, most of the economy seems
to be expanding. This was evident in the preliminary estimate of
third-quarter gross domestic product -- the broad measure of the
country's economic output from July through September. The Commerce
Department announced that the economy grew at a 3.9 percent annual
rate during that three-month period.
The consensus estimate had been growth at an annual
rate of about 3.2 percent. The reality turned out to be stronger
than that.
"This may have been the
summer of the housing market's discontent, but it clearly wasn't
for the rest of the economy," wrote Joel Naroff, president
and chief economist for Naroff Economic Advisers, in a note to clients.
Growth and inflation
Not only was economic growth better than expected, but inflation
remained in the safe zone. There are a number of measurements of
inflation, and the one that the Fed pays closest attention to is
the core personal consumption expenditures price index. It came
in at an annual rate of 1.8 percent in the third quarter. Most observers
believe the Fed aims to keep the core PCE price index between 1
percent and 2 percent.
A briskly growing economy brings with it the threat of higher inflation.
And long-term inflation expectations affect mortgage rates: When
it looks like inflation is going to rise, mortgage rates rise, too.
When the Fed cut short-term rates Sept. 18 -- the first decrease
in four years -- long-term mortgage rates went up, then settled
back down near where they had been five weeks before. It seemed
that the market decided that the Fed rate move didn't have much
effect on long-term inflation. It will take a few weeks for the
market to come to a consensus as to what this week's Fed cut means
to inflation and long-term interest rates.
And then there's the issue of timing. Even if a Fed rate cut translated
immediately into a drop in mortgage rates, you wouldn't see that
result until next week's survey. That's because Bankrate's weekly
mortgage survey is conducted on Wednesdays, and the data was collected
before the Fed announced its rate decision that day.
| 
This week: July 30 - Aug. 5
