By Kevin Chiu
Weak economic data and disappointing news on jobs led a drop in mortgage interest rates as the yield on heavily monitored 10-year Treasury bonds slid below 3%. It was the seventh week in a row that mortgage rates saw a drop along with applications for home loans.
The Feds quantitative easing program is scheduled to end at the end of June, but a series of negative economic reports trouble the U.S. economy and the housing market. First quarter consumer spending was revised downward by a half percentage point to 2.2%, according to the Bureau of Economic Activity, and consumer confidence in May was weaker that expected by most economists.
The bond market is usually regarded as the chief indicator of mortgage rates. The yield on the 10-year Treasury last reached 3% in December, which was about a month after the Fed started its security repurchase program in efforts to aid the economy. The heavily watched 10-year bond dropped to 2.34% in October, taking interest rates to a 50-year low.
The 30-year fixed rate mortgage averaged 4.55% for the week, a drop from 4.60% a week ago, according to Freddie Mac. The 15-year fixed rate loan also declined by a narrow margin to an average of 3.74%, a slide of 0.04%.
Applications for home loans also dropped 4% for the week, led by a decline in refinancing. The seasonally adjusted purchase index was essentially unchanged for the week.
“Interest rates fell last week as incoming economic data was weaker than anticipated,” said Mortgage Bankers economist Mike Fratantoni. “Despite this drop in rates, the number of refinance applications fell. In fact, the last time mortgage rates were this low, refinance volume was more than twenty percent higher. It is likely that many borrowers still cannot qualify to refinance given the lack of equity in their homes.”
The four week moving average for the seasonally adjusted index is up just 3.0%. The refinance share of mortgage activity fell to 65.7% of application activity from 66.8% a week ago. Fixed rate loans made up 93.8% of volume with adjustable rate mortgages making up the remainder.