Mortgage rates hit year's low point

After drifting downward for more than five months, mortgage rates have hit the lowest point all year, and that has ignited a refinancing boomlet.

The benchmark 30-year, fixed-rate mortgage fell for the sixth week in a row, this time by 9 basis points, to 6.08 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 0.25 discount and origination points.

The 15-year, fixed-rate mortgage fell 8 basis points to 5.83 percent. The 5/1 adjustable-rate mortgage tumbled 6 basis points to 5.95 percent.

That put the 30-year rate at its lowest level since Oct. 5, 2005, when it was 6.07 percent.

Mortgage rates have drifted generally downward for more than five months since they hit the year's high on June 28, when the 30-year fixed stood at 6.93 percent.

The investors whose trades set mortgage rates have been pushing rates down, chiefly on the belief that the higher gas prices and the cooling of the housing market were slowing the economy down enough to keep inflation tame. That would, in turn, be enough to spark rate cuts from the Fed.

Consumers have noticed the lower rates -- not enough to re-ignite the sagging housing market, but enough to get those who wanted refinancing into their local mortgage broker's office.

The Mortgage Bankers Association's weekly survey of mortgage applications, released Wednesday, showed a seasonally adjusted increase of 8.1 percent. Its Refinance Index rose even more strongly: to 13.7 percent, up from the previous week.

Homeowners with adjustable-rate mortgages have been especially quick to jump at the opportunity to refinance into fixed rates, Quicken Loans Chief Economist Bob Walters said in a press release.

"Long-term rates have caused the refi boom we've experienced the past few months to gain speed as homeowners flock from adjustable-rate mortgages to the security of a fixed-rate mortgage," he said.

But on Wednesday, a sour note came from the bond market that could reverse the good news for mortgage hunters. The 10-year Treasury note, an investment whose yield travels a path that usually parallels that of mortgage rates, reversed its slide after an unexpectedly strong employment report.

The report by the private employment service ADP estimated that U.S. private employers added 158,000 jobs, well above the 125,000 that was expected. With the unemployment rate already low, having strong employment growth would leave employers chasing fewer available workers, which could cause the employers to boost wages.

That would be inflationary, and the securities traders who set mortgage rates hate inflation. They'll be less likely to buy fixed-rate investments -- such as the bundles of mortgages sold in the secondary market -- since inflation eats into their value. That sends their prices down and their yields up. Mortgage rates tend to follow the path of the yields.

The well-chronicled decline in housing construction had been expected to ripple across the economy to weaken other industries, but the ADP jobs report hints that maybe it isn't so -- or at least, the losses in the housing are being made up for elsewhere, leaving the economy in overall strong shape.

Those trying to decide whether to lock in a mortgage rate now or wait a week to see if they fall even more are placing a bet on Friday's Labor Department job report. If the nonfarm job numbers confirm the ADP report and come in higher than expected, you'll probably lose.

"The slowing economy has pushed long-term interest rates to their lowest point of the year and brought more home buyers into the market," Quicken's Walters said. "Where rates go from here depends largely upon future economic data such as Friday's Employment Report."