Mortgage Rates Fall To The Lowest Level Since June 2013

For fourth consecutive week, mortgage rates took a dip, as the 30-Year Fixed rates touched the lowest levels since June of last year. 15-Year Fixed rates touched the lowest levels since October 2013.

The continued decline in mortgage rates is being attributed to less than stellar economic reports. Several key economic indicators are slipping, indicating a possible slower growth in the 3rd and 4th quarter of this year. According to Mortgage Bankers Association, for the week ending May 23, 2014:

• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.31 percent, from 4.33 percent, with points decreasing to 0.15 from 0.20 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
• The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 4.23 percent, from 4.24 percent, with points increasing to 0.16 from 0.09 (including the origination fee) for 80 percent LTV loans.
• The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.04 percent, from 4.06 percent, with points decreasing to -0.45 from -0.39 (including the origination fee) for 80 percent LTV loans.
• The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.42 percent, the lowest level since October 2013, from 3.43 percent, with points decreasing to 0.06 from 0.15 (including the origination fee) for 80 percent LTV loans.
• The average contract interest rate for 5/1 ARMs decreased to 3.13 percent from 3.14 percent, with points decreasing to 0.19 from 0.29 (including the origination fee) for 80 percent LTV loans.

Bad news for the economy is usually good news for mortgage rates. Investors move their money to the safety of bonds when the growth is slow or is expected to be slower. Mortgage backed securities (MBS) is a type of bond. With more demand, the yields of MBS go up, pushing the rates to the borrowers lower.

Continued tapering of bonds this year by the Federal Reserve has had virtually no impact on the rates. At the start of the year, that was a big concern. It was widely believed that the tapering would result in gradual increase in rates of 0.125%-0.25% every quarter. But with 5 months of the year gone, the rates are actually 0.25% lower than where they started at the beginning of the year.

Outlook for mortgage rates: As of now, rates seem to have settled into a comfort zone with very little day-to-day changes. Unless we suddenly start seeing much better news on growth and employment, rates will continue to stay in this range, possibly even slipping by another 0.125%. As we have seen in the past though, sometimes news come from unexpected quarters and suddenly changes all the predictions. So, as always, my advice is that if you find a rate that works for you – lock it. Floating is like gambling; you win sometimes, you lose sometimes.