Mortgage rates dropped this week amid economic reports that show that the United States still faces a bleeding labor market and a crawling economy.
The benchmark 30-year fixed-rate mortgage fell 10 basis points this week, to 4.69 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 4.77 percent; four weeks ago, it was 4.71 percent.
The benchmark 15-year fixed-rate mortgage fell 8 basis points, to 3.82 percent. The benchmark 5/1 adjustable-rate mortgage fell 9 basis points, to 3.4 percent.
Some mortgage experts expect the downward trend to last at least through next week.
"I expect rates to fall over the next several weeks," says Dan Green of Waterstone Mortgage in Cincinnati. "Greece and jobs are still in the forefront of the market."
Weekly national mortgage survey
Results of Bankrate.com's July 13, 2011, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
Dismal jobs report
The U.S. Department of Labor said last week the economy added only 18,000 jobs in June and the unemployment rate inched up to 9.2 percent. The department revised the May job figure down to 25,000. That means in the last two months, fewer than 45,000 jobs were added. Economists say the United States needs to add between 100,000 to 125,000 jobs per month to keep up with population growth.
If the job market continues to deteriorate, the Fed might consider another round of stimulus, Green says. Last Thursday marked the end of the Federal Reserve's $600 billion bond-buying program, known as QE2 because it was the second round of what the Fed calls quantitative easing.
The Fed had indicated that it did not plan a QE3, but some members of the Federal Open Market Committee said that "depending on how economic conditions evolve, the committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run," according to minutes of the last FOMC meeting, released Tuesday.
What a third round of quantitative easing would do to mortgage rates remains up in the air, Green says.
"When QE1 was introduced, rates plummeted," he says. "When QE2 was introduced, mortgage rates rose. So, it's not clear how the market would react."
European debt woes
For now, rates are expected to remain low, says Bob Moulton, chief executive of Americana Mortgage in Manhasset, N.Y.
Until the economy begins to improve and Europe works through its debt problems, it is unlikely that mortgage rates will spike, he says.
"The whole world is crumbling," Moulton says. "Investors are nervous about the stock market and are investing in our Treasury."
Increased demand for Treasury bonds normally pushes yields down, and that generally translates into lower interest rates.
Low rates not helping housing market
Even though mortgage rates are near historic lows, the housing market remained "exceptionally weak in the first half of 2011," according to the Fed's semiannual Monetary Policy Report to Congress released Wednesday.
"Housing demand continued to be restrained by households' concerns about the strength of the recovery for incomes and jobs as well as the potential for further declines in house prices," the report reads.
Tight lending standards also are keeping many borrowers from purchasing homes and refinancing their mortgages.
"Still-tight credit conditions for potential mortgage borrowers with less-than-pristine credit also appear to be damping demand," according to the report.
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