Mortgage rates fall again
By Holden Lewis • Bankrate.com

House prices have fallen in much of the country, and that put a damper on mortgage rates this week.

The benchmark 30-year, fixed-rate mortgage fell 2 basis points to 6.22 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 0.3 discount and origination points. One year ago, the mortgage index was 6.32 percent; four weeks ago, it was 6.46 percent.

The benchmark 15-year, fixed-rate mortgage fell 2 basis points to 5.96 percent. The benchmark 5/1 adjustable-rate mortgage fell 2 basis points to 6.11 percent.

Weekly national mortgage survey

Results of Bankrate.com's Nov. 22, 2006, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

On Monday, the National Association of Realtors announced that the typical American house lost value in the third quarter of this year -- July through September. Of the houses resold in the third quarter, half of them cost more than $224,900. In the same quarter a year earlier, half the houses had sold for more than $227,600. That 1.2 percent decline in the median price was the first such year-over-year drop since the first quarter of 1993.

The lower prices went along with a plunge in sales volume. For every eight houses, condominiums and co-ops that were sold in the third quarter of 2005, only seven were sold in the third quarter this year. The number of would-be sellers stayed about the same, but there were 12.7 percent fewer buyers. House prices went down because supply exceeded demand.

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Things went worse for home builders. Housing starts dropped off a cliff in October, down 27.4 percent from the previous October. Economists speculate that the colder housing climate knocks about 1 percentage point off Gross Domestic Product.

"Housing starts in October were down more than expected, which the market saw as an indication housing would be a bigger drag on the economy than had previously been thought," says Frank Nothaft, chief economist for Freddie Mac. "Slower growth usually means less inflation and less inflation means lower interest rates. Hence, the drop in mortgage rates this week."

Almost half of mortgage applicants are seeking to refinance their home loans, according to the Mortgage Bankers Association.

About three-quarters of all applicants are asking for fixed-rate mortgages, and the proportion is probably higher among refinancers.

"With an estimated $560 billion in ARMs set to adjust in the coming year," says Bob Walters, chief economist for Quicken Loans, "we're seeing a growing trend of people taking advantage of these still historically low rates by refinancing into a fixed-rate mortgage."

You can't blame them, because the difference in rates between ARMs and fixed-rate mortgages has narrowed. A year ago, the average 5/1 ARM had a rate of 5.85 percent, while the 30-year fixed averaged 6.32 percent. The fixed rate was almost half a percentage point higher. This week, the 30-year fixed is only 11 basis points higher than the 5/1 ARM.