Finally, mortgage rates fall

Just when mortgage rates finally fell, fewer homeowners applied to refinance their home loans.

Yes, 30-year fixed mortgage rates fell for the first time since August. They had either risen or remained unchanged for 11 weeks in a row. A mixed bag of economic data, including a slowdown in housing starts, led to the decrease in rates.

The benchmark 30-year, fixed-rate mortgage fell 10 basis points to 6.32 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 0.35 discount and origination points.

One year ago, the mortgage index was 5.72 percent, and four weeks ago it was 6.24 percent.

The benchmark 15-year, fixed-rate mortgage fell 11 basis points to 5.88 percent. The benchmark 5/1 adjustable-rate mortgage fell 8 basis points, to 5.85 percent.

"Lower oil prices -- at least compared to the last several months -- have helped to alleviate some of the inflation fears that the market has been experiencing lately," says Frank Nothaft, chief economist for mortgage titan Freddie Mac. "That helped to reduce upward pressure on interest rates last week, allowing mortgage rates to ease a bit."

Housing market cools a bit
The calendar was light on meaningful economic reports over the last week. The bulk of this week's rate decline happened late last week, after the Census Bureau reported that housing starts slowed to an annual pace of 2.01 million in October from September's pace of 2.13 million. Starts were down 2.3 percent from the previous October. Economists had expected a decrease, but not that much.

To keep things in perspective, anytime housing starts are at an annual pace of 2 million or more, it's a sign of a healthy home-building market. October's new housing market wasn't as hot as expected, but it was still pretty darn robust. Interest rates and the costs of building materials have been rising post-Katrina, making homes less affordable, so it's no surprise that housing starts have fallen back a bit.

Another economic report, one that measures business activity in the Federal Reserve's Philadelphia district, showed an unexpectedly large drop, too. Lower oil prices, plus evidence of a cooling economy, led to lower yields on U.S. Treasury notes as well as lower rates on mortgages.

Refi applications fall
Meanwhile, fewer people applied to refinance their home loans, according to the Mortgage Bankers Association. The group's seasonally adjusted refinance index was down 6.9 percent from the previous week, and the four-week moving average for refinance applications was down 4.6 percent. That's a mumbo-jumbo way of saying that more people were applying to refinance when rates were rising from 6.24 percent to 6.42 percent than when rates were falling during the last week.

Folks who applied a month ago, but didn't lock the rate, could benefit if rates continue to fall. It takes guesswork, but with luck they can lock as rates hit the bottom of the dip.

Nothaft, of Freddie Mac, notes that next week's economic reports could move mortgage rates. Which direction is anyone's guess. Figures for sales of existing and new homes will be released, and so will an index of consumer confidence. Nothaft expects the home sales numbers to fall from the previous month, while he predicts that consumer confidence will rise.