Mortgage Rates Continue to Drop, but Demand Still Low
For the fourth week consecutively, the mortgages rates eased a little more. According to the recent Primary Mortgage Market Survey by Freddie Mac, the rates for both short-term loans and long term loans have fallen by a small margin in the last week.
The average of 30 year fixed rate mortgage settled at 6.24 percent with 0.4 point last week as compared to 6.26 percent and 0.4 point, the week before. This is the lowest after the week ended 17th May 2007, when the 30-year FRM was 6.21 percent. According to last year’s data the interest rate averaged at 6.33 percent, same time last year.
Though the fees and points for the 15-year fixed rate rose from 0.4 point to 0.5 point, mortgage averaged at 5.90 %, just 0.01 % lower as compared to the week before. Last year too it averaged at 5.91 %. This is the second lowest as in week ended 10th May the average rate was 5.87 %.
While the 1 year adjustable rate mortgage remained unchanged, 5/1 ARM 0.07 % higher than the previous week and averaged 5.96 %. The Fed prime rate too remained unchanged but the 30 year treasury rate averaged 4.53 % which was 0.07 % lower as compared to the week before. The 1 year treasury index ARM averaged 5.50 % down from 5.57 % last week.
But in spite of falling mortgage interest rates, the demand for mortgage loans still seem to be lower. The refinance loan applications in the third quarter dropped to 38 % from 42 % in the second quarter. The most obvious reason is the tightening of lending standards by the lending firms post mortgage crisis situation that has led many banks and other financial institutions to write off huge amount of mortgage backed securities and other debts.
This is evident from the survey report released by Federal Reserve. Senior Loan Officer Opinion Survey on Bank Lending Practices pertains to the third quarter of 2007. The report revealed that over last few months lending standards for commercial and industrial loans had been revised and made more stringent by domestic as well as foreign lending institutions. The same applied for commercial loans pertaining to real estate.
Though it was subprime mortgage loans that triggered the mortgage crisis, financial institutions are now playing safe by introducing stricter norms for most borrowers having anything les than excellent credit ratings. The situation is unlikely to undergo any change with the reports of foreclosure rates rising and speculations that the banks may write off even higher amount in the fourth quarter, substantiates the fears more.
The foreclosure rate in the third quarter rose by almost 30 % as compared to that in the second quarter. Even though the government is trying to come up with feasible solution to the problems of distressed homeowners, with a good number of loans due to resent by mid of year 2008, the foreclosure rates are expected to remain high. Thus housing market is expected to remain slump throughout next year and even in early 2009.