It was a tale of two mortgage rate stories last week, with fixed-rate mortgages in decline and adjustable-rate mortgages beginning to climb back upward, as measured by the BankingMyWay Weekly Mortgage Rate Tracker.
Thirty-year fixed-rate mortgages continued their feather-like drop, falling to 5.2% from 5.26% for the week. Fifteen-year fixed-rate mortgages held ground at 4.74%, while three-year and five-year ARMs skyrocketed to 5% and 4.91% from 4.73% and 4.66%, respectively.
One-year ARMs also saw a sharp rise to 4.92% from 4.16%.
Increasingly, mortgage consumers find themselves in a quandary. Great rates have fallen into their laps, but there’s absolutely no guarantee that these same rates will be there even a few weeks from now.
Certainly, many Americans are acting now. According to the Mortgage Banker’s Association, mortgage applications rose 17% for the first week of September, with about 60% of all new loans coming from giddy refinancers, many of whom are snagging new 30-year fixed rate mortgage loans at 5% - and even lower in some cases.
Why the continued rally in mortgage rates? For starters, a bounce in mortgage-backed securities (thanks to a stronger-than-expected showing in 30-year U.S. Treasury auctions last week) helped push rates lower. Typically, as mortgage-backed securities rise, banks and other lenders reduce interest rates – they can still make as much money on the mortgage loans given that mortgage-backed products show higher prices.
But with no other real direction in the financial markets, interest rates are left to drift downward. There’s been no real “game-changer,” like a monster GDP number or other clear signal on the economy, unless you count last month’s unemployment number (off 296,000), which could signal things are getting better, albeit slowly.
While the talk of an economic recovery swells in the financial media, there is really no such talk happening at kitchen tables across America. Income is down, new jobs are hard to come by and people remain busy paying down debt. In that environment, consumer spending can’t get any traction. And if consumer spending can’t get any traction, then the economy can’t either.
One other factor. The U.S. government’s $8,000 new home tax credit comes off the books Nov. 30 – meaning consumers won’t get the cash unless their new home closes on Nov. 30 (unless Congress decides to grant an extension). That should push more home buyers to the streets this fall, but after the end of November, all bets are off.
So that’s the situation – low rates, but with no guarantee how long. If you’re a fence-sitter, it’s likely time to hit the ground running.
As always, get the best deal you can by checking out the best mortgage rates on BankingMyWay.com.