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Mortgage analysis   This week: July 30 - Aug. 5
  Each week, Bankrate publishes a survey of large lenders in the  
 top 10 markets to get a national snapshot of where mortgage rates stand today. 
 

30-year mortgage rate rises

Mortgage rates moved both up and down this week, a strange time in credit markets.

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The benchmark 30-year fixed-rate mortgage rose 7 basis points, to 6.5 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.32 discount and origination points. One year ago, the mortgage index was 6.45 percent; four weeks ago, it was 6.66 percent.

The benchmark 15-year fixed-rate mortgage rose 5 basis points, to 6.18 percent. The benchmark 5/1 adjustable-rate mortgage fell 8 basis points, to 6.45 percent.

And the rate on the 30-year jumbo, for mortgages of more than the conforming limit of $417,000, fell 2 basis points, to 7.38 percent. For the first time in more than a month, the difference didn't widen between conforming and jumbo rates.

Weekly national mortgage survey
  30-year fixed 15-year fixed 5-year ARM
This week's rate: 6.50% 6.18% 6.45%
Change from last week: +0.07
+0.05
-0.08
Monthly payment: $1,042.91 $1,408.46 $1,037.49
Change from last week: +$7.38 +$4.48 -$8.68

Mortgage commitments falling through
The 30-year fixed and 15-year fixed rose even though bond prices fell on worries that the economy is slowing down -- led by weakness in the real estate markets. For more than a week, data had been coming in that confirmed that home sales slowed down in mid-summer. On Wednesday, the National Association of Realtors announced that its July index for pending home sales crashed, falling more than 12 percent. The index tracks sales that have been agreed upon but not yet closed.

"With pending home sales collapsing before the mortgage credit crunch hit, the outlook for housing becomes even more disconcerting," wrote Joel Naroff, economist for Naroff Economic Advisors, in a note to clients.

The mortgage credit crunch hit in August, when investors abruptly stopped buying pools of jumbo mortgages for fear that too many borrowers would eventually default.

But the National Association of Realtors says the index was affected by the jumbo meltdown. "It's difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren't closing because mortgage commitments have been falling through at the last moment," says Lawrence Yun, NAR's senior economist.

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If the slight decline in the benchmark jumbo rate is an indication, jumbo mortgages aren't as scarce as they were three or four weeks ago. For the first six-and-a-half months of the year, the average jumbo rate was about a quarter of a percentage point above the average conforming rate. But when the jumbo scare began at the end of July, the difference widened considerably between jumbo and conforming rates. The spread between the two rates got bigger for six weeks in a row. At the end of August, the difference reached 97 basis points.

This week, it fell to 88 basis points -- still much more than it had been earlier in the year, but welcome news nevertheless for jumbo borrowers.

When the Fed meets ...
There's even more uncertainty than usual about the direction of interest rates because no one can figure out what the Federal Reserve is going to do when its rate-setting committee meets Sept. 18. There are signs that the economy is weakening -- the pending home sales index is one indicator and another is an anemic jobs report from ADP. The payroll company estimated that the private sector grew by 38,000 jobs in August, the slowest growth in four years.

Yet the Fed's Beige Book, an economic snapshot of the central bank's 12 districts, concluded that "economic activity has continued to expand."

"Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited," the economic report said. Yet, shortly after that, the Beige Book implied that the slowdown in home sales and a resulting downturn in home prices have depressed sales of furniture and motor vehicles. That sort of news could be taken as an argument for a rate cut.

The Fed described labor markets in many districts as tight, although "most reported that wage increases were moderate or steady." And inflation seemed in check, too.

The central bankers declined to telegraph whether they will cut short-term rates or keep them unchanged at the next meeting, in less than two weeks. That keeps the Fed's options open, but it makes mortgage markets jittery.

 
Bankrate.com's corrections policy
-- Posted: Sept. 6, 2007
 
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Mortgages
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NATIONAL OVERNIGHT AVERAGES
30 yr fixed mtg 4.28%
15 yr fixed mtg 3.30%
5/1 ARM 3.30%
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