Rates slide back near lows

Mortgage rates for August 25 2010

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Mortgage rates fell again this week, and refinances blipped up.

The benchmark 30-year, fixed-rate mortgage fell 4 basis points this week, to 4.59 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 0.38 discount and origination points. One year ago, the mortgage index was 5.53 percent; four weeks ago, it was 4.71 percent.

In the 25-year history of Bankrate’s weekly mortgage rate survey, the average rate on the 30-year fixed has been lower only once. That was the week of Aug. 11, when the average rate was 2 basis points lower, at 4.57 percent.

The benchmark 15-year, fixed-rate mortgage fell 3 basis points, to 4.08 percent. The benchmark 5/1 adjustable-rate mortgage fell 10 basis points, to 3.85 percent, and the 30-year, fixed-rate jumbo mortgage fell 4 basis points, to 5.22 percent.


Weekly national mortgage survey

Results of Bankrate.com’s Aug. 25, 2010 weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

30-year fixed 15-year fixed 5-year ARM
This week’s rate: 4.59% 4.08% 3.85%
Change from last week: -0.01 -0.03 -0.10
Monthly payment: $844.88 $1,227.11 $773.53
Change from last week: -$3.94 -$2.49 -$9.46

Rising refis, home prices

Rates fell this week after the National Association of Realtors released its report on home resales in July. Home sales were much weaker than most forecasters had expected. Concerns about the economy’s trajectory led stock prices and bond yields to fall, and mortgage rates went along for the ride.

One thing went up: refinances. Last week, mortgage refis were at their highest level since May 2009, according to the Mortgage Bankers Association.

“With rates this low, many borrowers who refinanced in the past two years may well have an incentive to refinance again, and this is likely increasing refi application activity,” says Michael Fratantoni, head of research and economics for the Mortgage Bankers.

More than 82 percent of mortgage applications last week were from homeowners who wanted to refi. The flipside of that statistic: Just 18 percent of mortgage applications were from homebuyers, which illustrates the abysmal level of home sales.

Home resales cratered nearly 30 percent from June to July, according to the National Association of Realtors. The Realtors say 389,000 homes were resold in July, compared to 555,000 resales in June. When mortgage rates are so low, it’s hard to believe that home sales are so weak. But when you look at what’s happened to house prices, the drop-off in sales is not a mystery.

According to the Realtors, the median house price has risen dramatically this year. The median price is the midpoint; half of houses cost less than the median. The median price in January was $164,900, and the median in July was $182,600. Over the same period, mortgage rates fell almost half a percentage point. The price increase overwhelmed the rate decrease.

Home affordability from January to July
Month Median price Loan after 20 percent down payment Average rate for month Principal and interest
January $164,900 $131,920 5.19 percent $724
July $182,600 $146,080 4.74 percent $761
Sources: National Association of Realtors, Bankrate.com

After making a 20 percent down payment on the median-price home, principal and interest totaled $37 more in July than in January, even though mortgage rates fell substantially. Homes became less affordable. No wonder home sales fell.

Falling prices ahead

At the rate that homes were resold in July, it would take about a year and two weeks to sell them all. In the argot of the Realtors, there’s a 12.5-month inventory.

“The inventory is extremely high,” says Manuel Iraola, CEO of Homekeys, an online real estate brokerage based in Miami. “I characterize the inventory as an iceberg sitting in the ocean. What we see is huge, huge numbers. And then the problem with the iceberg is what’s below the surface. You have millions of properties that are in some stage of foreclosure that haven’t reached the market. What are you going to do with those houses?”

Yet, home prices were higher in July, with a 12.5-month inventory, than they were in January, when there was a 7.8-month inventory.

“Prices need to continue to come down,” Iraola says. “Look at the surplus inventory. It’s economics 101.”