Mortgage rates hit fresh lows this week, as investors sought safety amid disappointing employment news and the uncertainties of an election year.
The benchmark 30-year fixed-rate mortgage fell to 3.79% from 3.87%, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index stood at 4.69%; four weeks ago, it was 3.91%.
This is the lowest the 30-year fixed has reached in the history of Bankrate's survey. The 30-year fixed has not increased in the weekly survey since April 4.
The benchmark 15-year fixed-rate mortgage fell to 3.05 percent from 3.13%, while the benchmark 5/1 adjustable-rate mortgage fell to 2.95% from 2.96%.
Weekly national mortgage survey
Results of Bankrate.com's July 11, 2012, 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:||3.79%||3.05%||2.95%|
|Change from last week:||-0.08||-0.08||-0.01|
|Change from last week:||-$7.53||-$6.37||-$0.88|
How Long Will the Trend Last?
"I'm shocked to say this, but between now and the election I think rates will continue to stay low or edge a bit lower," says Derek Egeberg, a branch manager at Academy Mortgage in Yuma, Ariz.
The presidential election is still four months away, but it has helped keep a lid on mortgage rates on two fronts. As major investors worry about potential tax policy changes depending on who will be elected, many choose to wait and park their money in U.S. Treasury bonds and mortgage-backed securities, Egeberg says.
Plus, it's unlikely that the Fed will allow rates to rise before the election, says Rob Nunziata, president of FBC Mortgage in Orlando, Fla.
Fed Won't Dare to Let Rates Rise Before the Election
The Fed has done everything in its power to keep rates low. It extended its bond-buying program, known as Operation Twist, until the end of the year and will continue to reinvest in mortgage-backed bonds to keep borrowing costs low.
To give you an idea of the Fed's bond-buying spree, from June 28 to July 3, the Federal Reserve bought $4.8 billion worth of mortgage bonds. In addition, the Fed is buying about $44 billion per month of long-term Treasury bonds, according to the minutes of the last Federal Open Market Committee meeting, released Wednesday.
Normally, the higher the demand for Treasury and mortgage bonds, the lower the yield or rate of return. Low yields generally help mortgage rates.
"After the election, the pressure or the incentive to keep rates low goes away," Nunziata says. That's when borrowers could see the trend in rates shift.
No Jobs, Low Rates
But if the jobs market in the United States doesn't improve, economic concerns will keep many investors away from riskier assets such as the stock market even after the election, some experts say. And that's good for rates.
Until investors feel confident about the U.S. economy, it is unlikely that rates will increase sharply.
"You need to see a massive amount of money going back into the stock market before that happens," Egeberg says.
Based on last week's jobs report, that massive flow of cash won't take place anytime soon.
The U.S. economy gained only 80,000 new jobs in June. That's disappointing when compared to the average of 226,000 new jobs per month added during the first three months of the year. The unemployment rate stood at 8.2%.
After the report was released Friday, the stock market and the yields on the 10-year Treasury note tumbled, as did mortgage rates.
Don't Wait Until the Election to Get a Loan
Although all indicators point to mortgage rates staying low, borrowers who think they can wait until a week before the election to apply for a mortgage should remember that rates are as vulnerable as the stock market.
"By the time it goes up, it's too late to do anything," Nunziata says.