After trending down four consecutive weeks, and reaching the lowest level since the mortgage’s initial introduction in the 50’s, the 30-year fixed-rate mortgage increased from 3.49 percent to 3.55 percent. The 15-year fixed-rate mortgage, which an earlier Freddie Mac survey shows has become more attractive to homeowners to refinance mortgage to low interest rate loans, also increased to 2.83 percent compared to 2.80 percent the prior week.
One of the constants in the housing market “weak” turn-around has been cheaper interest rates. Although new and existing home sales felled in May and June, year-over-year figures for June rose. More homebuyers are purchasing new homes, as builders have improved confidence, they have responded to increased activities to break ground for new homes at an increased rate for the April May and June.
The S&P/ Case-Shiller Home Price Index reports home prices have registered two straight months of increases for the 20 metropolitan areas measured by the index through May. Year-over-year median homes prices declined 0.7 percent.
The Freddie Mac Survey includes information the following indicators:
- Average fee for 30-year, fixed-rate mortgage – unchanged at 0.7 percent (of the loan amount)
- Average fee 15-year loans felled from to 0.7 percent from 0.6 point the previous week
- Average interest rate on one-year adjustable rate mortgages declined to 2.70 percent from 2.71 percent
- Average interest rate on five-year adjustable rate mortgages increased from 2.74 percent to 2.75 percent
The debt crisis in Europe continues to drive investors to purchase U.S. Treasuries-- considered the world’ssafest investments. An increase in demand for mortgage bonds leads to declining yields or interest rates paid to investors. Mortgage interest rates have a direct correlation with Treasury yields. Lower yields means lower mortgage interest rates.
Refinancing Helps Weak Economy
A direct benefit of low interest rate is the extra money borrowers have after lowering their monthly mortgage payments. A homeowner who can shave an extra $300 dollars a month off the mortgage payment can spend the savings on other items. Consumer spending, which makes up 70 percent of the gross domestic product, gives a boost to car dealerships, furniture makers, appliance manufacturers, home improvement centers and other sectors of the economy.
Nonetheless, the numbers for new and existing home sales remain below the annual rate housing analysts consider healthy level for the economy. In addition, tighter lending standards, in the form of higher FICO score requirements and higher down payments continue to put a stranglehold on potential homebuyers and homeowners trying to refinance their mortgages.
Concern about jobs has also dampened the economic recovery and kept potential homebuyers on the sideline. The latest employment data from the Department of Labor shows job growth - nonfarm payroll—increased to 100,000 compared to 80,000 new hires in June. Since the end of the first quarter, job growth has fallen below expectations. Economists anticipate the sluggishness to continue based on key employment indicators.
Fed May Take Action
With the economy still unable to generate any real momentum, the Fed indicates it might implement another round of monetary stimulus to spur growth. Any action taken by the Federal Reserve Board depends on the reading of economic indicators between now and policy meeting scheduled for September. Despite holding the Fed Funds rate, which represents the interest rate banks charge other banks to lend money overnight, near zero the past four years and injecting spending $2.3 trillion into the system , the Fed have a feeble economy to show for their efforts.