Interest Rate Roundup for May 19, 2011

Interest Rate Roundup
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  • 4.77% (30-year fixed)
  • 0.4 (average points)

Here's a look at the state of mortgage rates from's weekly national survey of large banks and thrifts conducted May 18, 2011.

With interest rates on U.S. Treasury securities falling to their lowest levels in months, and signs that the housing slump may be deepening, mortgage rates declined across the board.

The benchmark 30-year fixed-rate mortgage fell to 4.77 percent, off 5 basis points from last week's 4.82 percent. A basis point is one-hundredth of 1 percentage point.

Other fixed-rate home loans showed a similar pattern, with the 15-year mortgage declining 5 basis points to settle at 3.95 percent. Jumbo home loans, or generally those for more than $417,000, are at 5.22 percent, 4 basis points below a week earlier.

In the adjustable rate realm, the 5/1 ARM averaged 3.48 percent, compared to 3.52 percent in the previous week's survey.

The mortgage market is heavily influenced by interest rates of long-term U.S. Treasury securities, and those rates have been on the decline. In the article, "Investors head for US Treasuries haven," the Financial Times this week noted that investors are increasingly seeking the safety of U.S. government debt, and that demand has been pushing the prices of U.S. bonds up. With bonds, yields decline -- that is, interest rates fall -- as prices rise.

The yield on 10-year Treasury notes fell to its lowest level of the year earlier this week, according to Federal Reserve data. Other Treasury securities, including the 30-year bond, had a similar decline.

The Financial Times said weaker-than-expected economic data recently has dimmed the appeal of stocks, which had rallied previously based on the expectation of a more robust recovery. That has sent investors headed toward bonds.

Also, Treasuries' fixed yields have more appeal than earlier in the year, when there were widespread fears about rising inflation. Debt instruments that pay fixed yields are a tougher sell in an inflationary environment. That's because higher prices reduce the so-called real rate of return, where the interest paid is adjusted to account for inflation.

Although Treasury yields are a major component in how mortgage rates are set, other factors include consumer demand and competition among lenders. However, the weak housing market has given mortgage lenders little leverage to raise rates.

In fact, a government report released Tuesday suggested housing is growing weaker. Single-family housing starts in April were at an annual rate of 394,000, the report said, which was 5.1 percent below March. The release was issued jointly by the Census Bureau and the Department of Housing and Urban Development.

There was similar news with building permits, which are viewed as a barometer of future activity. Single-family permits in April were issued at an annualized rate of 385,000, or 1.8 percent below the revised March figure of 392,000, the release said.

Find out what your monthly mortgage payment could be using Bankrate's mortgage calculator.

-- Gregg Fields




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