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| 1st
mortgage rate decline in 7 weeks | | By Holden
Lewis • Bankrate.com |
| Finally, relief. For the first
time in two months, mortgage rates fell.
The benchmark 30-year fixed-rate mortgage fell 8
basis points to 6.76 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 0.27 discount and origination points.
One year ago, the mortgage index was 6.83 percent; four weeks ago, it was 6.42
percent. The 15-year fixed-rate mortgage fell 8 basis points to 6.45 percent.
The 5/1 adjustable-rate mortgage fell 9 basis points to 6.58 percent.
Before this week, the average rate on a 30-year fixed had risen
seven weeks in a row, going from 6.27 percent in Bankrate's April
25 survey all the way up to 6.84 percent in last week's survey.
It had been more than three years since rates had climbed so rapidly.
 |
Weekly national mortgage survey |
|
| This week's rate: | 6.76% | 6.45% | 6.58% |
| Change from last week: |
-0.08 |
-0.08 | -0.09 |
| Monthly payment: | $1,071.28 | $1,432.80 | $1,051.61 |
| Change from last week: | -$8.80 | -$7.25 | -$9.82 |
Reasons for mortgage rate drop
This
week's drop-off followed reports on consumer inflation and housing activity that
were interpreted as noninflationary by investors. Like tea leaves or animal entrails,
these economic reports could have been interpreted in many ways. They could have
been seen as harbingers of rising inflation and a rebounding housing sector. But
that's not how bond investors saw them, and the result was falling bond yields
and mortgage rates.
On Friday, the Labor Department reported in the consumer
price index that overall prices went up 0.7 percent in May. That
was the second biggest monthly increase in 16 years and a sign of
out-of-control inflation.
But bond traders, the Federal Reserve and the financial
press follow the "core CPI," an inflation measurement
that disregards prices of food and fuel, which tend to have big
ups and downs month to month. Gasoline prices skyrocketed in May,
so when you ignore them, you end up with a core inflation rate in
May of 0.1 percent. The bond market paid attention to that tame
inflation reading and, as a result, the yields fell on inflation-sensitive
bond yields and mortgage rates.
Housing starts' influence
Then, on Tuesday, the Commerce Department reported that housing starts
fell in May and that building permits were up compared to the previous
month. The rise in permits was attributed solely to an increase in
permits for multifamily structures, such as apartment buildings.
The bond and mortgage markets, mindful that the
residential construction sector is in a recession, ignored the rise in building
permits, which might be a mere anomaly. Instead, investors focused on the decline
in housing starts. That signal of a slowing economy sent bond yields and mortgage
rates even lower. "The U.S. Treasury market had reacted to inflationary
pressures around the world" when rates were rising, says Jeff Lazerson, president
of Mortgage Grader, which he describes as a "consumer advocate electronic
brokerage."
"But on a more local level," Lazerson says,
"there's information that's come out since then to indicate
that housing is deeply depressed, and that's driven rates down.
Markets tend to jump and react to the latest news."
The Mortgage Bankers Association reported that loan
applications fell 3 percent last week compared to the previous week,
but they were up 13 percent compared to the same week a year earlier,
when rates were almost identical.
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