Mortgages Barely Move in Fragile Economy

Signs of a still-fragile economy and concerns over the nuclear crisis in Japan led to a jittery stock market, leaving fixed-rate mortgages almost unchanged and pushing down on adjustables.Mortgage rates for April 13, 2011

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The benchmark 30-year fixed-rate mortgage fell 1 basis point this week to 5.07%, according to the 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 0.4 discount and origination points. One year ago, the mortgage index was 5.21%; four weeks ago, it was 4.91%.

The benchmark 15-year fixed-rate mortgage rose 1 basis point, to 4.28%. The benchmark 5/1 adjustable-rate mortgage fell 4 basis points, to 3.83%.

Steady rates are a reprieve for borrowers who had watched rates climb for three consecutive weeks, but it will be short-lived, say some mortgage experts.

"They never fall and stay low," says Nancy Gardner, chief executive officer of CMC Finance in La Jolla, Calif.

Gardner expected fixed rates to decline this week, in part because of a decline in the stock market.

"When the stock market starts to dip, money will go into a safe haven of bonds and that will drive interest rates down," she says.

It's all about supply and demand, she says. Stocks and bonds compete for investors' money. When stocks start to decline in value, investors get nervous and seek safer investments such as Treasury bonds.

As demand for Treasury bonds increases so does the price of those bonds, resulting in lower yields, or lower returns for investors. Mortgage interest rates normally follow Treasury yields. When yields fall, so do mortgage rates. Of course, like everything else in the complex world of mortgages, there are exceptions to the rule as there are times when yields fall and rates rise.Japan's nuclear crisis

Analysts blame the dip in the stock market, in part, on Japan's crisis.

On Tuesday, Japan's nuclear safety agency upgraded the severity of the Fukushima Daiichi nuclear complex incident to 7, the highest level on the scale, putting it on par with the 1986 Chernobyl disaster. The nuclear threat, topped with earthquake aftershocks, injected more fear into the investment world this week.

Oil prices

The market also received clear signs that the economy is still frail, and there is only so much consumers can take when it comes to rising living costs and energy prices.

Amid the recent spikes in oil prices, demand for oil has decreased, pushing oil prices a bit lower. Crude oil declined about 6% in the last few days, reaching $106.44 per barrel Wednesday morning. That's slightly good news for consumers but still high, considering oil was near $85 per barrel in mid-February.

To make investors even more nervous, on Monday, the International Monetary Fund lowered its projection for economic growth in the United States this year.

The economic and global uncertainties are expected to help keep rates low, says Bob Moulton, president of Americana Mortgage in Manhasset, N.Y.

"I don't expect much of a change anytime soon," Moulton says.

But Cameron Findlay, LendingTree's chief economist, says it's just a matter of time before rates rise again.

"Yes, there is continued pressure on rates, but they have reached bottom," Findlay says. "What's happening in the debt market, the events in Japan and Libya have been helping drive rates lower ... but today's events will be short-lived, and we are going to continue to see progressively higher rates."