Opposing forces keep mortgage rates steady
By Holden Lewis • Bankrate.com

A week before the election, mortgage rates have come almost to a standstill.

The benchmark 30-year fixed-rate mortgage fell 4 basis points to 5.66 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 0.31 discount and origination points. One year ago, the mortgage index was 6.04 percent.

The 15-year fixed-rate mortgage fell 4 basis points to 5.04 percent. The one-year adjustable-rate mortgage rose 1 basis point to 4.07 percent.

Rates remained steady because powerful forces are creating a standoff. Long-term mortgage rates rise when investors expect inflation to pick up. Rates fall when investors aren't worried about rising prices.

Rising oil prices and a weakening dollar are considered inflationary (in the long term, at least), while a mediocre job market keeps inflation in check.

Meanwhile, Japan props up the falling dollar by buying U.S. Treasuries, which depresses bond yields, and investors everywhere are uncertain about the election's outcome.

With oil hitting $55 a barrel, the dollar's value falling (making imports more expensive), and another Federal Reserve rate increase expected this year, "you would think that rates would be on the rise," says Greg Edelson, assistant vice president for MortgageIT, a Manhattan-based lender. But "economic growth this year has not been as robust as people had thought it would be, and there's a lot of uncertainty."

The sluggish job market means that unemployed people can't demand big bucks when they're interviewing, and bosses have an easy time rebuffing their workers' requests for raises. That helps to keep bond yields and mortgage rates down.

Edelson doesn't expect mortgage rates to move much in either direction for the rest of the year and into the beginning of 2005. He thinks that it's inevitable that rates will rise in 2005, but slowly. His view is reflected in the conventional wisdom in the mortgage industry.

If rates do rise slowly instead of abruptly jumping higher, it would continue to spell good news for homeowners and real estate agents. Demand remains strong for houses. Sales of existing homes rose 3.1 percent in September, to an annual rate of 6.75 million units, and sales of new homes unexpectedly rose 3.5 percent from August to September, to an annual rate of 1.2 million.