Mortgage rates fall below 6 percent
By Holden Lewis • Bankrate.com

The benchmark 30-year fixed-rate mortgage fell 22 basis points to 5.79 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 0.32 discount and origination points. One year ago, the mortgage index was 6.06 percent.

The benchmark 15-year fixed-rate mortgage fell 22 basis points to 5.11 percent. The benchmark one-year adjustable-rate mortgage fell 13 basis points to 3.94 percent.

The benchmark 30-year rate averaged 6 percent or lower all year until July 30, when it climbed from 5.99 percent to 6.26 percent in just one week. The average 30-year fixed rate stayed above the 6-percent mark before this week's swift decline. The biggest part of that drop occurred Tuesday, when markets were socked with a double-whammy of unexpected economic news.

First, the Conference Board's consumer confidence index came in lower. Economists had predicted that consumer confidence would rise. Instead, the September index was 76.8, down five points from the 81.7 percent registered in August. Consumers were disconsolate about jobs. For every consumer who said jobs are plentiful, three said jobs are hard to get.

"The lack of improvement in labor market conditions continues to dampen consumers' spirits," says Lynn Franco, director of consumer research for the Conference Board.

The second blow concerned a barometer of the business climate in the Chicago area. The Chicago Purchasing Managers' index of business activity dropped to 51.2 in September from 58.9 in August. Economists and investors had expected a slight drop, but nothing as big as the 7.8-point decline.

"A lot of reports seem to ratify that there's not a quick pickup, that we've reached a second soft spot in the U.S. economy," says David Littmann, chief economist for Comerica Bank. "The markets are very sensitive to that."

Michael Carliner, economist for the National Association of Home Builders, agrees. One reason for this week's drop in rates, he says, "is the economy doesn't look like it's going to boom fairly soon."

Both economists believe that the perception is wrong. They expect strong economic growth in the final three months of the year, and for rates to erase this week's drop. "This will reverse very quickly," Littmann says.

The way Littmann sees it, investors and bond traders aren't looking ahead at the general direction the economy will take the rest of this year and early next year. As they focus on what's happening today, rather than what will happen a few months from now, they cause big zigzags in markets for Treasury notes and fixed-rate mortgages.

Carliner expects home buyers to pounce on this dip in mortgage rates, but only "among people who already were well along in the process of shopping for a home."

Builders tell him that they're urging customers to move quickly, before rates rise again.

Mortgage offices got slightly busier last week, according to the Mortgage Bankers Association. There was a small drop in the number of people applying for mortgages to buy homes, and a 3.2 percent increase in applications for mortgage refinancings. Almost one-quarter of borrowers applied for adjustable-rate loans, which have lower rates than fixed-rate mortgages.