Mortgage rates moved both up and down this week, a
strange time in credit markets.
The benchmark 30-year fixed-rate mortgage rose 7
basis points, to 6.5 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 6.45 percent; four weeks ago, it was 6.66 percent.
The benchmark 15-year fixed-rate mortgage rose 5 basis points,
to 6.18 percent. The benchmark 5/1 adjustable-rate mortgage fell
8 basis points, to 6.45 percent.
And the rate on the 30-year jumbo, for mortgages of
more than the conforming limit of $417,000, fell 2 basis points,
to 7.38 percent. For the first time in more than a month, the difference
didn't widen between conforming and jumbo rates.
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Mortgage commitments falling through
The 30-year fixed and 15-year fixed rose even though bond prices
fell on worries that the economy is slowing down -- led by weakness
in the real estate markets. For more than a week, data had been
coming in that confirmed that home sales slowed down in mid-summer.
On Wednesday, the National Association of Realtors announced that
its July index for pending home sales crashed, falling more than
12 percent. The index tracks sales that have been agreed upon but
not yet closed.
"With pending home sales collapsing before the mortgage credit
crunch hit, the outlook for housing becomes even more disconcerting,"
wrote Joel Naroff, economist for Naroff Economic Advisors, in a
note to clients.
The mortgage credit crunch hit in August, when investors abruptly
stopped buying pools of jumbo mortgages for fear that too many borrowers
would eventually default.
But the National Association of Realtors says the index was affected
by the jumbo meltdown. "It's difficult to fully account for
mortgage disruptions in the index, and our members are telling us
some sales contracts aren't closing because mortgage commitments
have been falling through at the last moment," says Lawrence
Yun, NAR's senior economist.
If the slight decline in the benchmark jumbo rate is an indication,
jumbo mortgages aren't as scarce as they were three or four weeks
ago. For the first six-and-a-half months of the year, the average
jumbo rate was about a quarter of a percentage point above the average
conforming rate. But when the jumbo scare began at the end of July,
the difference widened considerably between jumbo and conforming
rates. The spread between the two rates got bigger for six weeks
in a row. At the end of August, the difference reached 97 basis
This week, it fell to 88 basis points -- still much more than it
had been earlier in the year, but welcome news nevertheless for
When the Fed meets ...
There's even more uncertainty than usual about the direction of
interest rates because no one can figure out what the Federal Reserve
is going to do when its rate-setting committee meets Sept. 18. There
are signs that the economy is weakening -- the pending home sales
index is one indicator and another is an anemic jobs report from
ADP. The payroll company estimated that the private sector grew
by 38,000 jobs in August, the slowest growth in four years.
Yet the Fed's Beige Book, an economic snapshot of the central bank's
12 districts, concluded that "economic activity has continued
"Outside of real estate, reports that the turmoil in financial
markets had affected economic activity during the survey period
were limited," the economic report said. Yet, shortly after
that, the Beige Book implied that the slowdown in home sales and
a resulting downturn in home prices have depressed sales of furniture
and motor vehicles. That sort of news could be taken as an argument
for a rate cut.
The Fed described labor markets in many districts as tight, although
"most reported that wage increases were moderate or steady."
And inflation seemed in check, too.
The central bankers declined to telegraph whether
they will cut short-term rates or keep them unchanged at the next
meeting, in less than two weeks. That keeps the Fed's options open,
but it makes mortgage markets jittery.