Mortgage rates fall on weak economic news

Mortgage rates fell for the second consecutive week as slower economic growth eased inflation concerns, according to surveys conducted by Freddie Mac and Bankrate.com.

In Freddie Mac's survey, the 30-year fixed-rate mortgage dropped to an average 6.63 percent this week, down from last week's average of 6.72 percent. The average for the 15-year fixed-rate mortgage also sank from last week, falling from 6.34 percent to 6.27 percent.

Points, which are fees charged by lenders for loan processing expressed as a percent of the loan, averaged 0.3 on the 30- and 15-year loans.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 6.27 percent this week, with an average 0.4 point, down from last week when it averaged 6.35 percent. The one-year Treasury-indexed ARM averaged 5.69 percent, with an average 0.7 point, down from last week when it averaged 5.78 percent.

"Second-quarter Gross Domestic Product (GDP) came in weaker than the market had expected. This means inflation is less of a threat, and that translates into lower mortgage rates," said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement. "Although lower rates are a welcome sight, we still feel that the 30-year fixed-rate mortgage rate will drift up and down somewhat over the next few months, but will average less than 7 percent for the year."

In Bankrate.com's survey, mortgage rates declined for the third time in the last four weeks on the heels of slower second-quarter economic growth. The average 30-year fixed-rate mortgage fell to 6.65 percent, the lowest since April 26, and these loans had an average of 0.3 discount and origination points.

The average 15-year fixed rate mortgage, popular for refinancing, dropped by a similar amount to 6.3 percent, according to Bankrate.com. On larger loans, the average jumbo 30-year fixed rate declined to 6.86 percent. Adjustable-rate mortgages also declined, with the average 5/1 ARM sliding to 6.36 percent, and the average one-year ARM retreating to 6.03 percent.

Validation that the economy did indeed grow at a slower pace pushed mortgage rates lower this week, Bankrate.com noted. The initial Gross Domestic Product for second quarter revealed a growth rate of 2.5 percent, but mortgage rates have fallen by one-quarter percentage point in the past month on mounting evidence that the economy is downshifting. Slower economic growth increases demand for long-term government bonds and reduces fears of inflation over a long horizon. Both send Treasury yields lower, and mortgage rates are closely related to yields on long-term Treasury securities.

Bankrate.com noted that fixed mortgage rates are nearly three-quarters of a percentage point higher than one year ago. One year ago, the average 30-year fixed mortgage rate was 5.91 percent, meaning that the monthly payment on a loan of $165,000 was approximately $980. With the average 30-year fixed rate now 6.65 percent, the same loan originated today would carry a monthly payment of $1,059. Despite recent increases, fixed mortgage rates remain an attractive refinancing alternative for adjustable-rate borrowers facing sharp payment adjustments, according to Bankrate.com.

The following is a sampling of Bankrate.com's average 30-year-mortgage interest rates this week in some U.S. metropolitan areas:

New York - 6.58 percent with 0.18 point

Los Angeles - 6.68 percent with 0.5 point

Chicago - 6.81 percent with 0.04 point

San Francisco - 6.69 percent with 0.24 point

Philadelphia - 6.56 percent with 0.41 point

Detroit - 6.73 percent with no points

Boston - 6.66 percent with 0.15 point

Houston - 6.68 percent with 0.39 point

Dallas - 6.58 percent with 0.48 point

Washington, D.C. - 6.5 percent with 0.64 point

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