Mortgage Rates Fall, Demand Up

By:
Kara Johnson | September 15, 2011

Fixed-rate mortgage fells to new record lows again this week, while demand for new mortgages and refinances rose last week after several weeks of declines.

Average interest rates on 30-year fixed-rate mortgages fell to 4.09 percent this week, according to the weekly Freddie Mac rate survey, down from 4.12 percent previously. Fifteen-year fixed-rate loans dropped to an average of 3.30 percent, down from 3.33 percent last week.
 

Lowest since 1951

 
Both are the lowest average rates Freddie Mac has ever reported for those types of loans since it began tracking 30-year rates in 1971 and 15-year rates in 1991. However, records from the National Bureau of Economic Research show that long-term fixed-rate FHA-backed mortgages averaged as low as 4.08 percent for several months during 1950-51.
 
Average initial interest rates on 5-year Treasury indexed adjustable rate mortgages (ARMs) picked up slightly from last week’s record lows, rising to 2.99 percent from 2.96 percent previously.
 

Refinance, purchase demand finally rises

 
The decline in rates over the past month and a half has done little to stimulate consumer demand for mortgages, however. The Mortgage Bankers Association (MBA) reports that mortgage applications finally rose last week following three weeks of falling applications for mortgage refinances, and five weeks of seasonally adjusted declines in applications for mortgages to buy a home.
 
 The MBA’s unadjusted Refinance Index rose 6.0 percent last week, while the seasonally adjusted Purchase Index was up 7.0 percent. Over the past four weeks, the Refinance Index is down an average of 3.9 percent a week, while the Purchase Index is up an average of 0.5 percent over the same period. On an annual basis, refinance applications are down 23.5 percent and purchase applications are down 7.2 percent compared to the same week one year ago.
 
Frank Nothaft, Freddie Mac chief economist, attributed the continuing slide in mortgage interest rates to investor concerns over a potential European debt crisis which kept yields on U.S. Treasury bonds low. Treasury bond yields often fall on bad economic news, as investors seek safe haven for their money and are willing to accept lower returns in doing so. Since U.S. Treasuries set the tone for interest rates in general, mortgage rates typically follow their lead.
 

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