Mortgage interest rates dipped slightly this week, as brokers and borrowers combed through recent economic data, seeking clues as to whether the U.S. economy is -- or isn't -- on the mend.
The benchmark 30-year fixed-rate mortgage dropped 8 basis points to 4.94 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 0.42 discount and origination points. A year ago, the mortgage index was 5.26 percent. Four weeks ago, it was 4.89 percent.
The benchmark 15-year fixed-rate mortgage fell 7 basis points to 4.32 percent. The benchmark 5/1 adjustable-rate mortgage lost 1 basis point, holding almost steady at 3.99 percent.
Weekly national mortgage survey
Results of Bankrate.com's Jan. 5, 2011, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
The dropback suggests the financial markets overreacted to the inflation fears that pushed rates higher in late December. The results also were in line with some expectations that rates would settle this week somewhere between the rock-bottom lows of early November and the jump-up that occurred two weeks ago.
Economic dataThe question now is whether mortgage rates will remain in the current range or make another move, says Anthony Hsieh, chief executive of loanDepot.com, a direct mortgage lender in Irvine, Calif. The answer will depend largely on the direction of the U.S. economy, which Hsieh says appears to be "firming up."
"Unemployment is starting to stabilize. Housing is stabilizing, although there are still soft pockets. Stocks are up, and there are inflationary fears with energy prices going up, so directionally and logically, we're in for potentially higher interest rates," he says.
Adding weight to that view was a report this week that manufacturing activity expanded for the 17th consecutive month in December. Manufacturing strength showed up in autos, metals, food, machinery, computers and electronics sectors, though housing-tied industries continued to struggle, according to the Institute for Supply Management in Tempe, Ariz.
A contrarian viewNot everyone is on board with the economic revival. Michael Moskowitz, president of Equity Now, a direct mortgage lender based in New York City, says he doesn't see any positive signs. Instead, he points to the potential negative effects of "tremendous labor problems" in state and city governments.
"What that means to me," he says, "is that taxes will go up, people will have less money and the economy will slow down."
A weaker economy could mean a longer period of lower mortgage interest rates.
Risk, reward equationSuch uncertainty creates a conundrum for borrowers over whether to lock a rate or allow the rate to float -- it is hoped -- downward.
Still, the advice is the same as it has been. Experts say borrowers should lock rather than gamble on rates. The upside might be a rate that's a quarter of a point lower, but the downside, if economic data stay positive, could be a rate that's half a point or more higher.
"It's not created equal between what you'd gain by not locking versus what you may lose," Hsieh says. "We're only about half a percent off the 50-year lows. That's not a bad deal."