Home Loans Fall, Despite Record Low Rates

Mortgage applications fell for the third consecutive week, but loans for home purchases increased, indicating pent up demand is starting to show as borrowers sign-up for record neighborhood low mortgage rates in the midst of the busy summer home buying season. Mortgages for home purchases rose 3%, according to the Mortgage Bankers Association survey.

Refinances, however, which make up more than three-quarters of mortgage activity, declined another 3%, despite record low mortgage rates being locked-in by borrowers. The average contract rate on a 30-year fixed mortgage being finalized by borrowers was 3.79%, the lowest in the history of the survey.

Mortgage rates on government backed FHA loans were even lower, declining to 3.63% on the average 30-year fixed rate loan, a drop from 3.69% the prior week. The rate was also the lowest in the history of the bankers’ survey.

The 15-year fixed rate shorter term fixed loan fell to 3.15% from 3.20% a week earlier on 80% loan-to-value mortgages. The rate was also the lowest being signed up for by borrowers since rates have been tracked by bankers.

A drop in yields paid to investors on U.S. Treasuries triggered the drop in rates. The decline comes as a result of economic uneasiness over the U.S. economy and world economic troubles coupled with a series of negative reports about the nation’s economy.

The average rate on an adjustable 5/1 loan also fell to an average of 2.71%, also the lowest in the history of the survey. The four basis point reduction was typical of rates being locked-in by borrowers seeking the lowest rates possible.

The 30-year fixed rate mortgage, the benchmark for all home lending activity, has remained under 4.00% since the beginning of the year. Economic weakness across the world is likely to drive rates lower in coming weeks.