Mortgage Rates Continue To Drop On Economic News

June 11th, 2010

Despite a continuing drop in mortgage rates, applications for mortgages fell steeply last week. Federal Reserve Chairman Ben Bernanke gave several talks that impacted mortgage rate markets. Mortgage rates continue to follow the lead of stock markets on a daily basis. Mortgage calculators can help you prepare for your mortgage refinance or to purchase your new home. The information below can help you determine where mortgage rates are headed.

Freddie Mac Reports Rates Decline

In its weekly rate survey Freddie Mac reported the average 30 year fixed rate effective on June 10, 2010 was 4.72% at a cost of 0.7 origination points. This is down slightly from the previous week and represents the seventh week of the last ten that this reported mortgage rate has gone down. Since April 8th the Freddie Mac average 30 year fixed rate has dropped almost one-half of one percent from 5.21% to the current rate of 4.72%. Using a refinance calculator you can see the tremendous savings a half-percent decline in rate brings you when refinancing your mortgage.

Mortgage Applications Drop

Despite continuing low mortgage rates, mortgage applications for the week ending June 4, 2010 declined according to the Weekly Application Survey released by the Mortgage Bankers Association. Seasonally adjusted total applications were down 12.2% led down by refinance applications which saw a decline in volume after four straight weeks of increases, dropping 14.3% from the prior week. Continuing decline in purchase mortgage applications, a 5.7% drop from the prior week, remains a fallout from the surge in applications ahead of the April 30th deadline for the IRS home buyer tax credit. Purchase applications for Memorial Day week 2010 were 30% lower than the same week in 2009.

Commenting on the drop in applications, Michael Fratantoni, MBA’s Vice President of Research and Economics stated, “Although rates remained essentially flat, refinance applications dropped this past week for the first time in a month. Despite the historically low rates, many homeowners have already refinanced recently, remain underwater on their mortgages, have uncertain job situations, or have damaged credit following this downturn, and therefore may not qualify to refinance.” Several of these factors are underlying issues on our economic recovery as well, factors that forecast continued low rates.

Bernanke Speaks

This past week Federal Reserve Chairman Ben Bernanke had several appearances in which he addressed the economy and alluded to the Fed’s official position of low rates for “an extended period.” With the U.S. Labor department releasing the data on unemployment claims on Thursday, total new claims of 456,000 for unemployment insurance and 4.46 million continuing recipients of unemployment insurance, data supports Bernanke’s continued statements that the Fed is watching employment as a gauge of economic recovery.

Speaking Monday evening Bernanke said, “My best guess is we’ll have continued recovery, but it won’t feel terrific.” Against last week’s employment numbers showing little increase in private sector payrolls Bernanke offered some optimism, not much, in saying, “There are some signs that the private sector is picking up the baton.” Until that baton is not only picked up but carried by the private sector the Fed will continue its position of resisting any increases in interest rates.

Addressing Congress later in the week Bernanke reiterated his comments about the private sector facing a slow recovery and expectations that the private sector will overtake the government in fueling any recovery. In his remarks Bernanke also warned Congress that continued fiscal policy of increasing debt, stating that unless federal debt and spending are controlled, “in the longer run, we will have neither financial stability nor healthy economic growth.”

Bernanke’s comments on economic recovery continued to be subdued and not forecasting a robust economic burst. With continued comments such as this the expectation is continuing low mortgage rates.

Dow Leads, Mortgage Rates Follow

With somewhat choppy economic data that is not unusual for an economy in transition, in this case from steep recession to sputtering recovery at the moment, investors who determine stock and bond prices, and therefore mortgage rates, react suddenly to news and data they receive. Good economic news leads to higher stock prices and the news reports the Dow surges above 10,000 points, while poor economic news, or less than good news, leads to sell-offs in stocks and the Dow plunging below 10,000 points. As the Dow Jones and other stock indices move, so too move mortgage rates, generally in the same direction. This past week early declines in mortgage rates were mitigated when the Dow Jones gained over 200 points on Thursday and pulled mortgage rates up.

As you plan your financial future and use the many free mortgage calculators available, keep in mind the volatility of the markets on a day to day basis. While mortgage rates remain at historic lows, and most indications are that low mortgage rates will continue in the future, day-to-day and week-to-week mortgage rates move, up and down. Plan accordingly!

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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