Mortgage rates retreat amid uncertainty
By Holden Lewis • Bankrate.com

Uncertain, tentative investors contributed to a drop in long-term mortgage rates this week.

The benchmark 30-year fixed-rate mortgage fell 15 basis points to 5.92 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 0.39 discount and origination points. One year ago, the mortgage index was 6.25 percent. (Rates then dropped and didn't exceed 6.25 percent until the last week of July, almost eight months later.)

The 15-year fixed-rate mortgage fell 15 basis points this week to 5.27 percent. The one-year adjustable-rate mortgage remained flat at 4.02 percent.

Rates dropped because Wall Street is wishy-washy, mortgage experts believe.

"I think there's a wait-and-see attitude on what's happening -- see how it shakes out," says Jim Bradley, president of American Residential Lending Corp., in Atlanta. Investors are waiting to see how holiday sales go, how employment and production numbers shake out in the fourth quarter, how the new year begins.

Anthony Liuzzo, an economist at Wilkes University in Wilkes-Barre, Pa., studies the holiday-shopping season each year. In September, he predicted that same-store sales would increase by 4 percent in November and December, which at the time seemed quite optimistic. Then, when the government reported that the economy grew extremely fast in the third quarter, and that jobs had been created in August, September and October, some pundits began forecasting holiday sales increases of up to 6 percent. Liuzzo hasn't changed his forecast of 4 percent growth in sales.

"It's been somewhat of a roller coaster," he says. Not only have pundits called his forecast overly optimistic and then not optimistic enough, but sales were strong in the weekend after Thanksgiving and then were diminished by the snowstorm in the Northeast.

So it's a little difficult to tell exactly how sales are going. The pace of holiday sales "also serves to show what's happening in the overall economy," Liuzzo says. He is sticking to his guns, predicting the biggest increase in holiday sales in four years as the economy bounces back.

Lenders and brokers, on the other hand, are going through a slowdown in business. Big banks are laying off employees in their mortgage divisions because few people are refinancing their mortgages.

"We're back to a normal refinancing market, and by that I mean that people are refinancing for a specific purpose other than for a lower interest rate," says Ellen Bitton, president of Park Avenue Mortgage in New York. People refinance to extract cash from their equity, for example.

There has been a decline in purchasers, too. According to the Mortgage Bankers Association's weekly survey, the number of mortgage applications for purchases dropped 9.5 percent last week. The number of applications for mortgage refinancings dropped 15.5 percent. The number of total applications reached a low not seen since June of 2002.