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Mortgage Rates Dip As Inflation Fears Ease

Rate drop is first in three weeks

By Mark Huffman
ConsumerAffairs.com

June 18, 2009

After spiking in recent weeks, mortgage rates seem to be settling back down. The latest survey by Freddie Mac shows rated down from their recent highs.

That comes as good news to home buyers and homeowners still seeking to refinance their current mortgages. It’s also a hopeful sign for the housing market, which needs a low rate environment to reduce the massive inventory caused by foreclosures.

According to Freddie Mac, the average rate for a 30-year fixed mortgage was 5.38 percent this week, down from 5.59 percent a week earlier. Rates had jumped for three consecutive weeks after yields on long-term government debt, which are closely tied to mortgages rates, rose with investors’ concerns that the huge surplus of government debt hitting the market could set off inflation.

"Mortgage rates followed the increase in bond yields this week as the May employment report showed that the economy lost fewer jobs than the market consensus had expected," said Frank Nothaft, Freddie Mac vice president and chief economist. "Revisions to the jobs report for earlier months also showed the job loss was not as large as early estimates had indicated: March and April figures were revised to add an additional 82,000 jobs to the work force. As a result, federal funds futures rose after the report, signaling that the market expects the Federal Reserve may raise its benchmark rate sooner rather than later."

Freddie Mac notes that higher mortgage rates are slowing refinancing activity but not demand for home purchases. Over the three-weeks ending June 5th, interest rates for 30-year fixed-rate mortgages rose nearly one-half of a percentage point. As a result, conventional mortgage applications for refinance fell each week during this period while applications for home purchases consecutively rose, according to the Mortgage Bankers Association.

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