Economic news pushes mortgage rates to 6-month lows
By Thomas A. Fogarty, USA TODAY
Mortgage interest rates tumbled to six-month lows this week, reacting to continued tame inflation and recent news of scant December job growth.
The 30-year mortgage interest rate averages 5.66%, down from 5.87% last week, mortgage investor Freddie Mac reported Thursday. The interest rate for a 15-year home loan averages 4.97%, down from 5.17% last week. Rates were last this low during the week ended July 11.
In the short term, the drop in what were already viewed as borrower-friendly rates will further fuel a housing market that is coming off a record-setting 2003. But industry economists in a conference call this week agreed that rates seem poised for a moderate rise of a percentage point or so during 2004, which could take the edge off the current housing market.
The drop in mortgage rates from last week is a reaction to a government report showing the economy added just 1,000 jobs in December. Economists had been looking for 150,000 new jobs.
The bond market reacted by driving down yields on 10-year Treasury notes, the benchmark for long-term mortgage rates. Freddie Mac economist Amy Crews Cutts said the labor report had "a chilling effect on the market's recent exuberance." She says mortgage rates should remain low for some time because of what she calls "an almost-inflationless recovery."
Adding to evidence that inflation remains in check is a government report issued Thursday that says consumer prices rose just 0.2% in December. For 2003, inflation was just 1.9%, the report said.
On this week's conference call, David Lereah of the National Association of Realtors said he expects 2004 to be the second-best year on record. Sales of existing homes should be 5.8 million this year, down from 6.1 million in 2003.
His forecast presumes a modest rise in mortgage rates. But if rates spike, he said, home sales could dive. Lereah says he worries most about the potential effect of rising deficits in the federal budget and in foreign trade. The twin deficits could stoke inflation, and force interest rates higher than expected, he said.
David Berson of mortgage investor Fannie Mae also looks for a strong year, but off slightly from 2003. He says the housing market could withstand a run-up in rates if the increase is caused by a recovering economy. Bond investors respond to a strengthening economy by driving up long-term rates. A stronger economy would increase the number of jobs and boost household balance sheets, offsetting a spike in rates. "It isn't necessarily a bad thing for housing," he said. |
