Bloomberg News

Mortgage Rates for 30-Year Loans Tumble to Eight-Month Low

August 04, 2011

(Adds home-sales data in sixth paragraph, comment from analysts in eighth and 10th paragraphs.)

Aug. 4 (Bloomberg) -- U.S. mortgage rates for 30-year loans plunged to the lowest level in more than eight months as the nation’s economic recovery showed signs of faltering.

The average rate for a 30-year fixed loan dropped to 4.39 percent in the week ended today from 4.55 percent, according to Freddie Mac. The average 15-year fixed-loan rate decreased to a record 3.54 percent from 3.66 percent, the McLean, Virginia- based mortgage-finance company said in a statement.

The decline followed a slide in yields for 10-year Treasury notes, which touched the lowest level since November yesterday as concern grew that the U.S. economy is slowing. Gross domestic product grew at a 1.3 percent annual rate in the second quarter, less than economists forecast, the Commerce Department said July 29. Reports this week showed an unexpected drop in consumer spending and slower-than-estimated growth in manufacturing.

“Two of the most important factors that influence mortgage rates are economic growth and inflation,” said Keith Gumbinger, vice president of HSH Associates, a loan-data firm in Pompton Plains, New Jersey. “The numbers show an economy that is stumbling far worse than expected. We’re pretty close to stall speed.”

Record Low

The rate for a 30-year fixed mortgage is the lowest since the week ended Nov. 18, when it also was 4.39 percent. It fell earlier in November to 4.17 percent, the lowest in Freddie Mac records dating to 1971.

The low borrowing costs have done little to boost home sales as banks tighten lending standards, the unemployment rate sticks above 9 percent and a glut of foreclosed properties drag down prices. Sales of previously owned homes declined in June to a seven-month low, the National Association of Realtors said last month. Home values in 20 U.S. cities dropped 4.5 percent in the year ended in May, according to the S&P/Case-Shiller index.

About 22.7 percent of homeowners with mortgages were underwater in the first quarter, meaning they owe than their properties are worth, according to CoreLogic Inc.

“The legacy of the housing crash and the poor economic backdrop are clearly limiting housing demand,” Paul Dales, senior U.S. economist at Toronto-based Capital Economics, wrote in a report to clients yesterday. “It has become even clearer that the housing market will remain weak for many years.”

U.S. mortgage applications rose 7.1 percent last week, led by refinancing, according to the Mortgage Bankers Association in Washington. The group’s refinancing index climbed 7.8 percent in the period ended July 22 from the prior week.

“Refinancing activity brings folks into the market,” Gumbinger said. “That said, with an estimated 25 percent of people underwater, and 9.2 percent unemployment, a large portion of the country just can’t qualify.”

--With assistance from Shobhana Chandra and Jillian Berman in Washington. Editors: Kara Wetzel, Daniel Taub

To contact the reporter on this story: Ashwin Seshagiri in New York at aseshagiri@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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