Mortgage rates eased again this week, amid signs that the U.S. economic recovery may have slowed or even stalled.
The benchmark 30-year fixed-rate mortgage fell 6 basis points this week, to 5.03 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. One year ago, the mortgage index was 5.12 percent; four weeks ago, it was 5.02 percent.
The benchmark 15-year fixed-rate mortgage fell 6 basis points, to 4.31 percent. The benchmark 5/1 adjustable-rate mortgage fell 8 basis points, to 3.85 percent, and the benchmark 30-year, fixed rate jumbo mortgage fell 7 basis points, to 5.6 percent.
The big picture was volatility and uncertainty, according to Steve Majerus, regional vice president at First California Mortgage Co. in Petaluma, Calif.
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Weekly national mortgage survey
Results of Bankrate.com's March 2, 2011, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
"While we've seen a slight improvement in interest rates over the past week, I have a longer-term view that, from week to week, rates will continue to bounce around," Majerus says. "Events that we don't control will dictate where things go for a while."
The dip in rates came as something of a surprise to some rate-trackers, among them Ray Wallace, a loan officer at Advantage America Mortgage in Moscow, Idaho.
"I thought maybe we would see another rise -- and maybe we still will," he says.
Fear of 'contagion'The volatility could be pinned in part on Libya, the world's 12th-largest oil producer and current Middle East hot spot. The violent unrest and investor speculation triggered a spike in oil and gas prices. However, the real fear, Majerus says, is of "contagion," the possibility that events in Libya might infect neighboring countries, some of which are higher on the list of top oil producers.
"If the flavor of the day today is Libya, will the flavor of the day tomorrow be Syria?" Majerus says. "Those uncertainties, both known and unknown, could potentially affect things both positively and negatively."
To connect the dots, rising oil prices suggest a slower economic recovery. That prompts investors to favor more conservative investments, particularly bonds over stocks. More demand for bonds means higher prices and, inversely, lower yields. As yields drop, so too, do mortgage interest rates.
Home sales slowOther U.S. economic data this week also disappointed investors and put downward pressure on rates.
The Bureau of Economic Analysis, or BEA, lowered its prior estimate of growth in the nation's gross domestic product, or GDP, in the fourth quarter of 2010 from 3.2 percent to 2.8 percent, suggesting a weaker recovery than had been supposed. Granted, 2.8 percent was a better performance than the 2.6 percent posted in the third quarter of 2010 and wasn't a double dip in the supposedly over-and-done-with recession, but it wasn't a sign of a healthy expansion.
Housing markets, often cited as a crucial component of a robust recovery, also showed signs of weakness. Sales of existing homes rose 2.7 percent from December 2010 to January 2011, an annualized pace of 5.36 million, according to the National Association of Realtors. However, the group also reported that the median existing-home price dropped 3.7 percent from January 2010 to January 2011 and a forward-looking index of pending sales also dipped, by 2.8 percent in January compared with December's figure.
Volatile interest rates currently aren't the cause of fewer home sales, Majerus says. Rather, he says, "tighter loan underwriting guidelines and buyer psychology" are at fault. Those factors are keeping traditional homebuyers on the sidelines while cash-paying investors snap up well-priced homes.