No Consistent Trend in Week's Mortgage Rates

Mortgage rates once again posted a mixed performance this past week, with two of the major surveys reporting declines against one that reported an increase.

The Freddie Mac and Bankrate.com weekly surveys, both reporting mortgage activity through midweek, posted conflicting results, with Freddie Mac reporting a slight decline in 30-year fixed mortgage rates and Bankrate reporting a small increase. Thirty-year rates in the Freddie Mac survey were down three basis points, to 5.22 percent, while those in the Bankrate survey rose 9 basis points, to 5.65 percent.

Meanwhile, a big drop in rates was reported in the weekly survey by the Mortgage Bankers Association, which reported a drop of nearly two-tenths of a percent, to 5.17 percent from 5.36 percent, along with a modest increase in mortgage refinance applications by homeowners seeking to take advantage of low rates.

Taken together, the three surveys show that mortgage rates remain sensitive to signals from other financial markets and indications of economic trends in general. The Mortgage Bankers survey covers the week ending each Friday, so the data does not reflect the influence of positive economic news earlier this week that caused the stock market to rise and drove up the yields on 10-year Treasury bonds, which strongly influence mortgage rates.

As economic prospects improve, Treasury bonds have to pay higher yields to attract investors who might otherwise be drawn to higher-yielding investments that now appear less risky. Since Treasury bonds are considered safe investments, they generally set the floor for what a 10-year investment will earn. Since mortgages are riskier than bonds, but are typically paid off in 10-years, fluctuations in the 10-year bond yield has an indirect effect on mortgage rates.

Mortgage rates have remained within a fairly consistent range of about a quarter point over the past month, after sharply trending upward in June. Even so, they remain at unusually low levels, on a historical basis, and may begin to trend upward again if there are more signs that the recession is bottoming out.

The Federal Reserve also appears unlikely to take further strong actions to bring rates back down toward the 5 percent range. Two members of the Fed's board of governors told Bloomberg News this week that they expect the Fed will not extend its current program to buy U.S. Treasuries and mortgage backed securities when it expires in September. The program had a dramatic effect in pulling mortgage rates down to historic lows after it was announced in March and many analysts have expected that the Fed would accelerate or expand such purchases if it saw a need to take further action to bring rates down.