Weak job growth brings lower mortgage rates

Real Estate Agent with Douglas Elliman Real Estate

Story's different for jumbo, adjustable loans, surveys find

Thursday, August 09, 2007

Inman News


Long-term mortgage rates fell again this week mostly on news of disappointing job growth and an increase in jobless claims, Freddie Mac and Bankrate.com reported today.

In Freddie Mac's survey, the 30-year fixed-rate mortgage sank to an average 6.59 percent from last week's 6.68 percent, and the 15-year fixed-rate mortgage fell to 6.25 percent from 6.32 percent. Points, which are fees lenders charge for loan processing expressed as a percent of the loan, averaged 0.4 on the 30- and 15-year loans.

Adjustable-rate mortgages (ARMs), however, were up this week, with the five-year Treasury-indexed hybrid ARM rising to 6.33 percent from 6.29 percent and the one-year ARM growing to 5.65 percent from 5.59 percent. Points on these loans averaged 0.5.

"Interest rates on prime conforming fixed-rate mortgages eased further in the past week, according to the Primary Mortgage Market Survey, even though other sources such as HSH Associates reported that jumbo fixed rates increased by a quarter percent or more last week," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. "Job creation fell short of market expectations, with 92,000 jobs added in July, the smallest gain since February, and June's number was revised down by 6,000. In addition, the unemployment rate ticked up for the first time in four months to 4.6 percent."

In Bankrate.com's survey, it was a topsy-turvy week for mortgage rates, with the average conforming 30-year fixed mortgage rate falling to 6.66 percent, and discount and origination points averaging 0.25.

The average 15-year fixed-rate mortgage popular for refinancing pulled back similarly to 6.33 percent, Bankrate.com reported, but it was a much different story on larger loans and adjustable-rate mortgages. The average jumbo 30-year fixed rate jumped to 7.35 percent, the highest since April 2002, and the average 5/1 ARM climbed to 6.55 percent while the average one-year ARM rebounded to 6.15 percent.

According to Bankrate.com, rates for jumbo mortgages -- those larger than $417,000 -- have been increasing as investors command a bigger mark-up for loans that come without any guarantees against default. At a time when conforming fixed mortgage rates have fallen, borrowers in high-cost areas and wealthier borrowers buying bigger homes are seeing much higher rates. The spread between the average conforming and jumbo fixed rates has increased from 0.28 percentage point to 0.69 percentage point in the past two weeks. And add adjustable mortgage rates to the list, with rates on hybrid ARMs jumping this week, some to levels higher than a fixed-rate loan. The average 7/1 and 10/1 ARM rates -- which are fixed for the first seven or 10 years and then adjust annually after that -- are both higher than the average fixed rate, at 6.67 percent and 6.81 percent, respectively. The place for borrowers to be in today's market is the fixed-rate mortgage, especially if they're borrowing less than $417,000.

Despite the turbulence in mortgage markets, fixed mortgage rates are an attractive option for most borrowers. Three months ago, the average 30-year fixed mortgage rate was 6.29 percent, meaning that a $200,000 loan would have carried a monthly payment of $1,237. Even now, the average conforming 30-year fixed rate is just 6.66 percent, and a $200,000 loan carries a monthly payment of $1,285.

The following is a sampling of Bankrate.com's average 30-year-mortgage interest rates this week in some U.S. metropolitan areas:

New York - 6.69 percent with 0.03 point

Los Angeles - 6.76 percent with 0.43 point

Chicago - 6.71 percent with 0.06 point

San Francisco - 6.61 percent with 0.5 point

Philadelphia - 6.68 percent with 0.16 point

Detroit - 6.69 percent with no points

Boston - 6.68 percent with 0.04 point

Houston - 6.63 percent with 0.46 point

Dallas - 6.61 percent with 0.36 point

Washington, D.C. - 6.59 percent with 0.43 point

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