Mortgage rates took another dip this week as investors grew anxious over Greece's debt woes and sought safety in the United States.
The benchmark 30-year fixed-rate mortgage fell 10 basis points this week, to 4.23%, 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 0.38 discount and origination points. One year ago, the mortgage index was 4.42%; four weeks ago, it was 4.21%.
The benchmark 15-year fixed-rate mortgage fell 9 basis point, to 3.48%. The benchmark 5/1 adjustable-rate mortgage fell 4 basis points, to 3.18%.
The financial turmoil in Europe has influenced the direction of mortgage rates for months now, but especially in recent weeks, says Bob Walters, chief economist at Quicken Loans.
"As bad news proliferates in Europe, investors sell risky assets and buy safer assets," he says. "When some kind of resolution appears to be near, they sell safer assets and buy riskier assets."
Those safer assets include U.S. Treasury bonds. When the demand for bonds grows, the yield, or rate of return, drops. Mortgage rates often follow the direction of yields.
Weekly National Mortgage Survey
Results of Bankrate.com's Nov. 2, 2011, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
|30-year fixed||15-year fixed||5-year ARM|
|This week's rate:||4.23%||3.48%||3.18%|
|Change from last week:||-0.10||-0.09||-0.04|
|Change from last week:||-$9.68||-$7.30||-$3.61|
Simply put, bad news for Europe keeps mortgage rates low in the United States. Good news for Europe pushes U.S. mortgage rates higher.
A couple of weeks ago, investors became optimistic when eurozone leaders were close to reaching a resolution that would help contain the crisis. But on Tuesday, Greece's prime minister said a negotiated bailout package for Greece will depend on a referendum put to the country's voters. That development injected fear in the global market and triggered a flight to safety that helped U.S. mortgage rates this week.
Problems at Home
Economic concerns in the United States and the Fed's recent moves also have contributed to lower rates, Walters says.
"There are problems in Europe, but we can't lose sight of what's happening at home," Walters says.
The Fed says that, even though economic growth "strengthened somewhat" in the third quarter, unemployment remains an issue.
"Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated," reads the statement released Wednesday after the Federal Open Market Committee meeting.
The committee did not announce any new moves after the meeting. It says it will continue to reinvest in long-term securities, a strategy designed to keep rates low.
"The Fed made no change to policy, shifting Wall Street's attention back to Greece and the U.S. labor market -- the same two drivers of mortgage rates since February," says Dan Green, a loan officer at Waterstone Mortgage in Cincinnati.
How Long Will the Low Rates Last?
The crisis in Europe and the weak economy in the United States are expected to help keep rates low for now, says Michael Becker of WCS Funding Group in Baltimore.
Like others in the industry, Becker thinks there is little chance rates will fall much lower.
"I think you are looking at a lot of volatility right now," he says, "but I can't envision a scenario where rates dip lower than when they reached the record low" in October.
The benchmark rate on the 30-year fixed mortgage reached 4.21% Oct. 5. That's the lowest level the fixed-rate hit since Bankrate started tracking the rate in 1985.
Walters thinks rates have reached bottom.
"I wouldn't say it's impossible, but we'd have to get terrible outcomes in the global economy" for rates to drop much lower, he says.
For those borrowers who keep waiting for even lower rates, he says, "it's risky and probably inappropriate to wait and hope that interest rates go lower than this."