Mortgage rates just sit there, like a bump on a log
By Holden Lewis • Bankrate.com

Mortgage rates were more or less unchanged this week, putting a merciful end to a four-week streak of increases.

The benchmark 30-year fixed-rate mortgage was unchanged this week, at 6.62 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index was 6.74 percent; four weeks ago, it was 6.2 percent.

The benchmark 15-year fixed-rate mortgage fell 1 basis point, to 6.19 percent. A basis point is one-hundredth of 1 percentage point. The benchmark 5/1 adjustable-rate mortgage rose 4 basis points, to 6.28 percent and the 30-year, fixed-rate jumbo rose 1 basis point, to 7.72 percent.

Weekly national mortgage survey

Results of Bankrate.com's June 25, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

Rates began to rise swiftly in May. After falling to 6.02 percent in Bankrate's May 21 survey, the benchmark 30-year rate rose to 6.62 percent in four weeks. This is the highest that the 30-year fixed has been since the middle of August.

Application volume fell more than 9 percent last week compared to the week before, according to the Mortgage Bankers Association. Applications were down 25 percent compared to the same week a year before. Clearly, with rates at a 10-month high, people are staying away from mortgage offices.

"With the movement up in interest rates, I'm wondering what we'll do around here in July and August," says Steve Habetz, owner of Threshold Mortgage in Westport, Conn.

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Habetz wonders what the incentive is to buy a house if rates are stuck at their highest point of 2008, while house prices are falling.

"We've totally reversed psychology," he says, comparing today's situation to that of two years ago, when people couldn't make offers on houses fast enough because home values were rising so quickly.

Back in late June 2006, the 30-year fixed was barely less than 7 percent. Borrowers would complain if rates were that high today, but they were eager to take out loans in those days.

And buyers were picky. According to a survey commissioned in spring 2006 by Wells Fargo Home Mortgage, first-time homebuyers weren't willing to compromise. About 40 percent of the renters surveyed said they were unwilling to buy a house that was smaller than they'd like.

A similar percentage of renters said they would avoid buying fixer-uppers. And 70 percent of renters said they wouldn't buy in a neighborhood that's less desirable than their ideal.

Now buyers' desires are more basic. They don't want to pay big money for houses that will lose value over the next few years. That common-sensical standard, plus the recent advances in rates, has kept buyers on the sidelines.

Habetz, who has been in this game for a few years, is philosophical. "Values aren't going down forever, and interest rates aren't going up forever," he says.