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Mortgage rates fell this week on signs that the housing
economy continues to stall and inflation poses little threat.
The benchmark 30-year fixed-rate mortgage fell 7 basis
points to 6.42 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 0.36 discount and origination points. One year ago, the mortgage
index was 6.31 percent; four weeks ago, it was 6.5 percent.
The benchmark 15-year fixed-rate mortgage fell 6 basis points to
6.1 percent. The benchmark 5/1 adjustable-rate mortgage fell 9 basis
points to 6.26 percent.
 |
| Weekly
national mortgage survey |
|
| This week's rate: |
6.42% |
6.10% |
6.26% |
| Change from last week: |
-0.07 |
-0.06
|
-0.09 |
| Monthly payment: |
$1,034.25 |
$1,401.29 |
$1,017.01 |
| Change from last week: |
-$7.58 |
-$5.38 |
-$9.68 |
Pending home sales collapsed in August, according to the National
Association of Realtors, which blamed the drop-off more on problems
in the mortgage market than on economic fundamentals. The Realtors'
pending home sales index is an indicator for what will happen over
the next few months in the housing sector. The index is based on
pending sales of existing homes -- that is, houses on which an offer
has been accepted, but the buyer hasn't closed yet. A sale that
was pending in August was likely to be finalized in September or
October.
Jumbo squeeze
The August pending home sales index fell 21.5 percent compared with
August 2006. It fell 6.5 percent from July. A 6.5 percent drop in
one month is big. This one coincided with turmoil in the market
for jumbo mortgages, which made home loans of more than $417,000
harder to get in August and September.
"Fewer contracts were being written because of mortgage availability
issues," the Realtors' senior economist, Lawrence Yun, says
in a news release. He added that "more than 10 percent of sales
contracts fell through at the last moment in August, primarily the
result of canceled loan commitments." In expensive markets,
where more buyers rely on jumbo mortgages, the cancellation rate
approached 30 percent, Yun says.
If his analysis is correct, you would expect to see median house
prices fall in the next few months, as the top end of the market
is chopped off. That hasn't happened yet, which comes as a mild
surprise. In fact, prices for used houses went up in August, even
as the jumbo problems were starting.
Yun adds that the jumbo squeeze has eased since August and the
beginning of September, although jumbo rates are still higher than
they would be under normal conditions. He expects that "sales
activity in late fall will better reflect market fundamentals."
Those market fundamentals aren't exactly causing home sellers and
home builders to rejoice, though. At the end of August, there were
10 months' worth of used houses on the market, and eight months'
worth of new houses. With inventories so high, homebuyers are in
control.
Inflation effect
With fewer customers to compete for, mortgage lenders have a strong
incentive to keep rates down as much as possible. There's little
that lenders can do, though, because rates are mostly set by broad
market forces, such as the inflation rate. And that's going down,
too.
There are several measures of inflation, and the one that the Federal
Reserve pays closest attention to is known to the long-winded as
the core personal consumptions expenditures price index, and dubbed
"core PCE" by most economists.
Core PCE inflation ran 1.8 percent in the 12 months ending in August.
In February, it peaked at 2.5 percent and has fallen steadily ever
since. The lower inflation rate is friendly to mortgage rates.
The inflation news gives the Fed's rate-setting panel "more
flexibility to cut rates if the members think that the economy remains
at risk," says economist Joel Naroff, of Naroff Economic Advisors.
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This week: July 30 - Aug. 5
