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MORTGAGE RATES

Mortgage Rates Decrease Again, Home Prices At Mid- 2002 Levels

Written By:
June 01, 2012 at 2:00 AM

Mortgage Rates Going to Bottom

The 30-year fixed rate mortgage, which represents the most preferred loan for homebuyers and homeowners looking to mortgage refinance, continues to register record lows. According to the Mortgage Bankers Association (MBA), the average 30-year rate declined 0.03 percent, to 3.75 percent, for the week ending May 25, 2012. The 30-year mortgage has recorded a declined for five consecutive weeks. The 15-year mortgage rate tumbled below 3.0 percent for the first time in the history of the Freddie Mac mortgage survey.

Mortgage Application Numbers

The volume of mortgage applications, as measured by the MBA’s seasonally adjusted Market Composite Index, dropped 1.3 percent from the prior week. The Index decreased 1.6 percent on an unadjusted basis. The Refinance Index fell 1.5 percent from a week ago.

The seasonally adjusted Purchase Index, which measures the volume of mortgage applications for homebuyers, declined 0.6 percent compared to the previous week. On an unadjusted basis, the Purchase Index fell 1.8 percent from the prior week activities. On a year-to-year basis, the index declined 3.9 percent.

The four-week moving average for the Market Composite Index increased 3.23 percent on a seasonally adjusted basis. The Purchase Index component fell 0.67 percent. The four-week moving average for the Refinance Index climbed 4.36 percent.

The percentage of applications for mortgage refinances remained at the previous week’s level of 76.6 percent of all mortgage applications. Applications for adjustable-rate mortgages (ARM) declined from 5.0 percent of total applications to 4.9 percent compared to the last week.

Average Interest Rates

The average contract interest rates for 30-year fixed rate mortgages, consisting of conforming loans of $417, 500 or less, decreased to another historic low for the survey—from 3.93 percent to 3.91 percent. Points for mortgages with an 80 percent loan-to-value (LTV) ratio, including origination fees, increased from 0.39 percent to 0.46 percent. The overall effective rate, which does not include upfront costs, increased compared to the prior week.

Jumbo mortgages—loans with balances exceeding $417,500—for the average contract interest rate fell from 4.25 percent to 4.23 percent. Points dropped 0.02 percent to 0.40 percent for mortgages with an 80 percent LTV, which includes the loan origination fee. The effective interest rate decreased from the previous week.

The average contract interest for government–insured 30-year FHA loans fell by 0.03 percent to 3.70 percent—another record low for Freddie’s weekly survey. Points for the FHA mortgage product, including the origination fee, climbed 0.02 percent, from 0.57 percent to 0.59 percent. The effective rate decreased from the last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.70 percent. Again, the lowest rate in the history of the survey, as it dropped from 3.73 percent. Points increased to 0.59 from 0.57 (including the origination fee) for an 80 percent LTV. The effective rate decreased from last week.

The 15-year fixed-rate mortgage had an average contract interest rate of 3.23 percent. It represents another low, decreasing from 3.26 percent the prior week. Points for a mortgage with an 80 percent LTV decreased from 0.42 percent to 0.39 percent. The effective rate also declined.

For the 5/1 adjustable–rate-mortgage, the average contract interest rate decreased from 2.83 percent to a historic low of 2.77 percent. Point for this mortgage product fell from 0.42 percent to 0.38, for loans with an 80 percent loan-to-value ratio. Similar to other loans measured in the survey, the effective interest rate decreased.

Financial Uncertainties in Europe

Mortgage interest rates have decreased to about 50 percent of the level reached at the peak of the U.S. housing market around July 2006. Almost six years ago, the average interest rate for a 30-year fixed-rate mortgage hovered around 6.75 percent. American homebuyers submitting applications for mortgages and homeowners applying for mortgage refinances have become the direct beneficiaries of the ongoing economic drama playing out in the Eurozone.

The financial issues of Greece, Spain and Ireland may cause these countries to abandon the Euro. The financial exposure of other counties, including the United States, has investors looking for a safe place to move investment capital. This means more dollars moving into U.S. Treasuries—long considered the safest investments in the world. In turn, the yield or interest rates paid to Treasury investors have declined. Mortgage interest rates move in lock step with U.S. Treasury yields.

Average Home Prices Decline in Q1

Home values increased during the months of February and March. However, even with 12 of the 20 Metropolitan Statistical Areas showing increases, home prices for the first quarter of 2012 decreased. Homes values reached the lowest levels since the financial crisis, according to the S&P Case/Shiller Home Prices Index. The cities of Chicago, Atlanta and Detroit suffered decreases in home prices. Tampa and Miami home values increased, while Las Vegas prices did not change. On average, home prices have dipped to mid-2002 level nationally.

The job market and weak economic growth remain a concern for housing market analysts. Nonetheless, economists expect the combination of low home prices and historic interest rates to stimulate home buying.

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