By Mike Colpitts
After rising last week, mortgage rates dropped again to near a new low average hitting 3.66% on the 30-year fixed rate loan, a five basis point decline from a week ago, according to Freddie Mac. The 15-year loan also fell.
The shorter term mortgage and the 30-year loan have been at or near record low averages for more than two months as banks and mortgage financing companies keep rates low in order to attract the best borrowers. The lower rates have produced a refinancing craze among homeowners seeking to refinance their debt into lower mortgage payments.
However, only about half of all mortgage holders who are applying for refinances are able to qualify for the new cheaper loans. Many are seeking 15-year fixed rate mortgages to pay off their homes more quickly. The rate on the 15-year loan fell to an average of 2.95%, a three basis point drop from a week ago.
The 5-year Treasury indexed adjustable rate loan also dropped three basis points from last week to average 2.77%. The 1-year ARM fell to 2.74%, down four basis points. The decline in rates was produced by worldwide economic jitters, resulting in a mild decline in U.S. Treasury bonds.
A series of reports on weakening economic indicators provide a background for lower rates. “Industrial production fell in two of the last three months ending in June,” said Freddie Mac chief economist Frank Nothaft. “In addition consumer sentiment fell in June to its lowest level this year, according to the University of Michigan survey.”
Other factors are also hindering an economic recovery, including high unemployment in the majority of the country. However, in its monetary policy announcement Wednesday the Federal Reserve said growth in employment has slowed in recent months and household spending appears to be rising, which is a positive sign for the economy.
“There were also some positive indicators on the housing market,” said Nothaft. Single family home construction rose for the third straight month in May to an annualized rate of 516,000 homes. Home builder confidence also rose in June to its highest reading in more than five years, according to the National Association of Homebuilders monthly survey.