Mortgage Rates Drop Consecutively

For the second consecutive week, national mortgage rates dropped. Holden Lewis of Bankrate.com reports in his July 13, 2006 article, “Mortgage rates drop for 2nd week in a row,” that this had not happened since March 2006.

According to Bankrate.com, a basis point is one-hundredth of 1 percentage point. “The benchmark 30-year fixed-rate mortgage fell 4 basis points to 6.87 percent, according to the Bankrate.com national survey of large lenders. The 15-year fixed-rate mortgage fell 7 basis points to 6.47 percent. The 5/1 adjustable-rate mortgage fell 3 basis points to 6.52 percent.”

There are two primary reasons why the mortgage rates dropped again for the week of July 13. The first reason concerns the train bombings in Mumbai, India. “At times of international tension, investors buy Treasury notes, and such a buying spree depresses bond yields. Mortgage rates often follow.”

The second and more important factor that lead to the decrease in mortgage rates is that the June employment report was released on Friday, July 7, by the Labor Department.

Most investors expected the report to say that the economy had grown by 160,000 to 175,000 jobs in June. Instead, the report said that non-farm payrolls grew by 121,000.

As a result, many investors began to read into the report and came up with a complicated, yet reasonable conclusion.

“Jobs aren't being created at the pace that we thought, so workers won't be in a position to demand pay raises, which means that businesses won't have to jack up prices to pay for higher wages, which means that inflation won't get out of hand, which means the Federal Reserve might stop raising short-term interest rates pretty soon, and that will take away some of the upward pressure on long-term rates, including for mortgages.”

Investors use these job reports constantly as a guide to measure interest rates, inflation, mortgage and so on. If the June job reports indicate a trend of a slowing economy, mortgage rates may continue to fall. “In a mid-year report, three housing economists predict that mortgage rates have just about peaked.”

The three housing economists are the chief economists for the National Association of Home Builders. All three expect 30-year mortgage rates to remain under 7 percent for the rest of the year.

Even though mortgage rates dropped, this may indicate negative trends for the economy and the housing market.

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