Mortgage Rates Continue to Drop but Demand Still Low
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Mortgage Rates Decline, Yet Demand Remains Low
Summary
Mortgage rates have decreased for the fourth consecutive week, according to the recent Primary Mortgage Market Survey by Freddie Mac. Both short-term and long-term loan rates have slightly fallen, yet demand for loans remains subdued.Article
Mortgage rates have dropped for the fourth consecutive week, according to Freddie Mac's recent Primary Mortgage Market Survey. Despite this trend, the demand for mortgage loans remains low.
Current Rate Trends
The average 30-year fixed-rate mortgage dropped to 6.24% with 0.4 points, down from 6.26% the previous week. This marks the lowest rate since May 17, 2007, when it was 6.21%. Last year at this time, the average was 6.33%.Although fees and points for the 15-year fixed rate increased from 0.4 to 0.5 points, the mortgage rate averaged 5.90%, just 0.01% less than the previous week, and slightly lower than last year’s 5.91%. This is the second-lowest rate since the week ending May 10, when it was 5.87%.
Meanwhile, the 1-year adjustable-rate mortgage remained unchanged, and the 5/1 ARM increased by 0.07%, averaging 5.96%. The federal prime rate stayed steady, but the 30-year treasury rate fell to 4.53%, 0.07% lower than the previous week. The 1-year treasury index ARM decreased from 5.57% to 5.50%.
Declining Demand
Despite the drop in interest rates, demand for mortgage loans continues to be low. Refinance loan applications fell from 42% in the second quarter to 38% in the third. This decline is largely due to tighter lending standards imposed by lenders after the mortgage crisis, leading banks and financial institutions to write off significant amounts of mortgage-backed securities and other debts.Tighter Lending Standards
The Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices for the third quarter of 2007 confirms this trend. It indicates that domestic and foreign lenders have tightened lending standards for commercial and industrial loans, including those related to real estate.Even though subprime mortgage loans initiated the mortgage crisis, financial institutions are now enforcing stricter criteria for borrowers with less than excellent credit. With rising foreclosure rates and expectations of further bank write-offs in the fourth quarter, cautious lending practices are likely to continue.
Foreclosure Concerns
Foreclosure rates rose by nearly 30% in the third quarter compared to the second quarter. Despite government efforts to aid distressed homeowners, a significant number of loans are set to reset by mid-2008, keeping foreclosure rates high. Consequently, the housing market is expected to remain sluggish throughout the next year and into early 2009.You can find the original non-AI version of this article here: Mortgage Rates Continue to Drop but Demand Still Low.
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