The 30-year and 15-year mortgage rates continue to fall to historic lows, as average rates have trended down for six straight weeks. According the Freddie Mac Primary Mortgage Market Survey, the most popular mortgage product for home purchases and mortgage refinances-- the 30-year fixed-rate mortgage, dropped to 3.67 percent from 3.75 percent.
The 15-year mortgage, which according to Freddie the preferred mortgage product for 3 out of 10 homeowners who applied for mortgage refinances during the first quarter of 2012, declined to 2.94 percent compared to 2.97 percent the prior week. The 5-year adjustable rate mortgage (ARM) averaged 2.84 percent compared to 3.28% a year ago. The 1-year ARM averaged 2.94 percent, down from 2.95 percent on year –to-year basis.
The 30-year mortgage rate has averaged below 4 percent since December last year. The mortgage product has the lowest rate since its introduction more than six decades ago.
Low Rates Should Stimulate the Economy
In theory, low mortgage interest rates translate into more home sales. Generally, lower mortgage rates motivate many homeowners to refinance their mortgages. Reducing the amount people pay for monthly mortgage payments makes “disposable income.” People who have more cash to spend tend to purchase cars, furniture, appliances, clothing and other goods and services, which help the economy.
Many renters want to buy a home and homeowners desire to refinance their homes. However, fear of job loss, lack of stable income or belief that home prices will continue to decline have stifled home buying and mortgage activities well below the activity level such low interest rates would generate in normal times. Although home sales have increased, sale rates do not come close to what economists believe makes for a healthy economy.
Mortgage Refinance Applications Up
In another, closely watch report used to gauge the strength of the housing and mortgage markets, the Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey showed a 1.3 percent seasonally adjusted increase in the Market Composite Index for the week ending June 1. MBA adjusted the figures because of the Memorial Day holiday.
The unadjusted rate shows the index decreased 9 percent. The seasonally adjusted Purchase Index, which presents data for home purchase applications, declined compared to last week, posting its lowest point since April 13, 2012. On an unadjusted basis, the Purchase Index dropped 13 percent over last week and 3 percent lower on an annual basis.
The percentage of mortgage refinance applications, referred to as the Refinance Index, rose 2 percent over the last week. Mortgage refinances reached the highest point since February 10, 2012. In addition, mortgage refinance applications rose to 78 percent of all mortgage application activities. This represents a 1 percent increased from the prior week. Adjustable rate mortgages (ARM) made up 5 percent of mortgage applications.
30-Year Fixed Rate Most Common Amortization
The MBA reports the 30-year fixed rate mortgage remain the most popular choice for home purchase applications submitted during May 1012, comprising 85 percent of total applications. The 15-year fixed mate loan commanded 7 percent of home loan applications and adjustable-rate-mortgages 6 percent.
Other fixed-rate mortgage products, such as 10-yeqar or 40-year terms made up 2 percent of mortgage applications. Data also reveal mortgage applications for 15-year fixed rate mortgages at the highest level for 2012 for home purchases, but at the lowest point of the year for mortgage refinances, according to the MBA.
Jobs Still the Primary Concern
Even with the latest weekly jobless claims report showing applications for unemployment benefits down, economists remained guarded because of the sluggish job market. The May job report showed employers only added 69,000 jobs in May—the lowest in a year. In addition, the Labor Department revised job report numbers reveal businesses created 49,000 fewer jobs than previously reported for the last two months. The unemployment rate increased from 8.1 percent in April to 8.2 percent in May.