Home loan borrowers got a reprieve this week as mortgage interest rates dipped again, albeit slightly.
Rates have dropped in two consecutive weeks after rising in mid-February.
"Since then, we have seen some improvement," says Reggie Green, a loan officer at Firstline Mortgage/Crossline Capital in Chandler, Ariz. "But it's not a huge improvement (this week) from a week ago."
The benchmark 30-year fixed-rate mortgage fell 7 basis points this week, to 5.09 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 0.45 discount and origination points. One year ago, the mortgage index was 5.15 percent; four weeks ago, it was 4.97 percent.
Weekly national mortgage survey
Results of Bankrate.com's Feb. 23, 2011, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
The benchmark 15-year fixed-rate mortgage fell 6 basis points, to 4.37 percent. The benchmark 5/1 adjustable-rate mortgage fell 12 basis points, to 3.93 percent, and the benchmark 30-year, fixed-rate jumbo mortgage fell 6 basis points, to 5.67 percent.
Oil prices affect ratesThe major development has been the civil unrest in the Middle East. The violence in Libya has been especially red-hot on investors' rate-quote screens since the country is a member of OPEC, the Organization of Petroleum Exporting Countries, which has controlled crude oil output in the region since the 1960s.
The average U.S. retail price for a gallon of gasoline was up 4.9 cents last week to $3.189, according to the U.S. Energy Information Administration, or EIA. Gas prices are still lower than the peak in the third quarter of 2008, but the trend line has been upward since prices plunged at the end of that year. Prices are about 50 cents per gallon higher today than a year ago, according to the EIA.
Meanwhile, the Bureau of Labor Statistics reported that the Consumer Price Index rose 0.4 percent in January. Compare that to last year's 1.6 percent pace, and inflation appears to be on the rise.
Also, the Federal Reserve's Federal Open Market Committee, which sets the benchmark federal funds rate, raised its growth projection for this year's gross domestic product to a range of 3.4 percent to 3.9 percent. In November, it had forecast that the economy would grow in a range of 3 percent to 3.6 percent in 2011. The higher revised estimate suggests stronger economic activity.
What's the connection between those trends and mortgage rates?
Fred Arnold, a branch manager at American Pacific Mortgage in Roseville, Calif., says:
"The overall economy is ticking up and doing better, which causes rates to go up, and inflation is coming back slowly, which causes rates to go up. But then we have turmoil in the Middle East, which causes rates to go down because people are going to more conservative investments. So it's a yin and yang. The other yin and yang is if (the price of) oil goes up, things cost more, which adds to inflation, which adds to higher interest rates. However, the yang on that is that higher oil prices lead to a slower economy."
Borrowers come backThose ups and downs are "creating a little bit of urgency" among homebuyers, Arnold says, because fears of still-higher rates may outweigh hopes of still-lower house prices.
Borrowers can still get lower rates, but at the cost of more upfront points, Green says.
Rates have affected the volume of loan applications, which dropped 9.5 percent in the week ending Feb. 11, only to rebound 13.2 percent in the week ending Feb. 18, according to Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association in Washington, D.C.
"Ongoing turmoil in the Middle East brought interest rates lower last week," Fratantoni said in a statement. "Borrowers took advantage of these lower rates, bringing application activity back near levels from two weeks ago, following sharp declines last week."
Green says more applications have landed on his desk.
"Applications are going up in the past week or two," he says, "because people realize we're not going back to those 4 percent rates."
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