Mortgage rates fall for 5th week out of 6
By Holden Lewis • Bankrate.com

The benchmark mortgage rate has fallen in five of the last six weeks, and home prices are falling, too.

The benchmark 30-year fixed-rate mortgage fell 15 basis points to 6.43 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 6.49 percent and four weeks ago, it was 6.71 percent.

The benchmark 15-year fixed-rate mortgage fell 11 basis points to 6.13 percent. The benchmark 5/1 adjustable-rate mortgage fell 11 basis points to 6.53 percent. The benchmark jumbo mortgage, for loans of more than $417,000, remained unchanged at 7.4 percent. Six weeks ago, the average jumbo rate was a quarter of a percentage point above the benchmark conforming rate; now it's almost a full percentage point higher.

Since mid-July, rates have been on the decline for prime, conforming loans -- in other words, mortgages for people with good credit who are borrowing $417,000 or less. Unfortunately for the housing industry, it's happening too late. This year's summer months, which are the prime house-buying months, have had the highest rates of 2007. That's the case even when you take into account the recent slide in rates.

Average rates

January 6.30 February 6.28 March 6.19 April 6.28 May 6.36 June 6.74 July 6.77 August 6.61

While the 30-year fixed nestled north of 6.5 percent most of the summer, house prices stopped rising. (That doesn't necessarily mean that one caused the other.) Even as the inventory of unsold houses kept growing, median prices of used houses rose every month from February through June, according to the National Association of Realtors.

House prices reversed course in July, falling less than 1 percent compared with June, according to the Realtors. July happened to have the highest mortgage rates of the year. The combination of falling prices and higher rates frustrated would-be home buyers. It wasn't a picnic for home sellers, either.

Here's how a theoretical situation played out:

The median used-house price in March was $217,400, according to the Realtors, and in July, the median price was $228,900. In Bankrate's survey, the 30-year fixed averaged 6.19 percent in March and 6.77 percent in July.

Let's say two homeowners bought median-priced houses -- one in March and one in July. Each put down 20 percent and paid the average mortgage rate for the month. The March buyer pays $1,064 per month in principal and interest, and the July buyer pays $1,190, or $126 more. That difference buys a lot of lattes.

Weekly national mortgage survey

Results of Bankrate.com's Aug. 29, 2007, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

That was in July, and the Realtors won't have sales figures for August until Sept. 25. From the viewpoint of buyers, the outlook is improving. Rates have been heading downward, and it looks like house prices will fall for a while, too. The inventory of unsold houses and condos is at a record high -- almost 4.6 million units. At the rate dwellings were sold in July, it would take 9.6 months to sell all the homes that were on the market that month.

"Forget 'location, location, location,'" writes Mark Larson, interest rate and real estate analyst for MoneyandMarkets.com, in his blog, Interest Rate Roundup. "The most important factor in today's real estate market is 'supply, supply, supply.' We are swimming in an ocean of homes for sale."

Prices won't rise again until the inventory glut is reduced, Larson writes. And he adds: "One other thing to keep in mind: These are 'PC' figures -- Pre-Crunch. The mortgage credit crunch that began very late in July and picked up steam in August will likely put more downward pressure on home sales and prices this month and into the fall."

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