Mortgage Rates Stay Low As Home Sales Plummet + Other Mortgage News

June 25th, 2010

As mortgage rates hit 50 year lows and economic reports last week showed a sluggish economy, the Fed shows no inclination to change its direction regarding low rates. However, home sale and price reports provide some insight into future mortgage rate direction. Reference this economic news to assist you as you use a free mortgage calculator to determine refinance and purchase mortgage options.

Federal Reserve Holds Steady

Following a two day policy meeting, the Federal Reserve issued a statement on Wednesday that retains the language of prior statements regarding near-zero short term interest rates. Along with a cautious evaluation of the economy, the Fed expects to retain near zero rates for “an extended period.” The Fed also underscored the change in pace of economic recovery by stating that it is merely “proceeding.”

The Fed very carefully crafts the language of its statements to prevent either alarmist or excessively optimistic misinterpretation. So what does it mean?

As discussed on this site last week, economic data for May was not congruent with a strong recovery taking place in the economy. Combined with other comments made in the past weeks by individual Fed members, it is clear that the Fed feels no pressure to raise short term rates in the near future.

Mortgage Rates Steady

In fact, Freddie Mac reported that mortgage rates are holding consistent at 4.75% and a cost of 0.70 origination points, in its Primary Mortgage Market Survey released on Thursday for the week ending June 17th.

Up only slightly from the prior week rate of 4.72%, the Freddie Mac rate has remained under 5% for 80% loan-to-value mortgages for six weeks in a row. When following the mortgage markets, expect the average 30-year fixed rate to continue under 5% for at least the next few weeks, giving you time to prepare your mortgage application information as you use a free mortgage prequalification calculator for your new home purchase.

Mortgage Applications Decline

In their Weekly Mortgage Application Survey the Mortgage Bankers Association (MBA) reported a drop in overall applications, led by a 4.4% decrease in applications for government mortgages (FHA and VA).

Following last week’s increase in purchase applications, the survey reported that for the week ending June 18th, purchase mortgage applications declined slightly at 1.2% and are almost 37% lower than the same week in 2009. The survey reported that low mortgage rates are keeping refinance mortgage applications near 75% of all applications taken by MBA members.

Home Sales Plunge

As anticipated on this site, but evidently surprising many economists, new home sales dropped 33% and existing home sales dropped 2.2% from April to May. According to Commerce Department data released this week, new homes sold at an annual rate of 300,000 units, the lowest ever since the Commerce Department began tracking the data in 1963.

Because of the April 30th deadline for the IRS home buyer tax credit, many potential home buyers accelerated their purchases to beat the deadline. As a result, home sales for May, June, and possible even July or beyond should be artificially low, just as sales in April were artificially low in anticipation of the deadline.

Home Prices Rising

Despite the month-to-month decline in home sales, existing home sales were 19% higher than in May 2009. Reflecting the year-to-year increase in sales was an increase in the median home sale price, up 4.2% in May from April and 2.7% from May 2009. The year-to-year increase in median home prices demonstrates increasing stability in housing markets across the country.

This is good news for homeowners looking to replace their existing mortgage with a lower mortgage rate, but facing potentially disqualifying low home values. Use a free mortgage refinance calculator to evaluate whether this can help you save money.

What Now?

With the decline of purchase mortgage applications throughout May, the resulting decline in home sales should not have been a surprise; neither are the continued low mortgage rates in the market.

As the summer buying season begins to heat up, do your home work with a free mortgage calculator to take advantage of mortgage rates that are at fifty year lows–before rising home prices and economic recovery pick up the pace.

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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