Long-term mortgage rates this week dropped to their lowest levels in four weeks on news of a sharp slowdown in manufacturing and new-home sales, Freddie Mac reported today.

According to Freddie Mac, the average 30-year fixed-rate mortgage fell this week to 6.07 percent from 6.17 percent a week earlier, and the average 15-year fixed was down to 5.68 percent from 5.79 percent. Points, or fees lenders charge for loan processing expressed as a percent of the loan, averaged 0.5 and 0.6, respectively, on the 30- and 15-year loans.

Freddie Mac reported that average rates on adjustable-rate mortgages (ARMs) also declined, with the five-year Treasury-indexed hybrid ARM falling from 5.9 percent to 5.78 percent and the one-year ARM dropping from 5.53 percent to 5.47 percent. Points on these loans averaged 0.5.

“The new year has begun with mixed signals on the direction of the economy and mortgage market,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. “On the downside, the Institute for Supply Management’s index of manufacturing activity showed significant contraction in this sector, perhaps a harbinger of a more substantial economic slowdown to begin this year. On the upside, the Conference Board reported that consumer confidence rose in December for the first time in five months, with more positive expectations for the next six months. Furthermore, interest rates have moved lower with average 30-year fixed-rate mortgage rates down about a tenth of a percentage point, the lowest in four weeks.”

On home sales, Nothaft said the latest data sent “mixed messages on the direction of housing activity towards the end of 2007,” and that the “latest forecast has total home sales continuing to decline in the first quarter of (2008) before starting a slow recovery.”

Further weakening was seen in applications for home loans, as the Mortgage Bankers Association reported mortgage application volume declined 11.6 percent last week on a seasonally adjusted basis from the previous week, with the index tracking refinancings down 15.4 percent and the index tracking purchase loans down 8.5 percent.

According to Bankrate.com’s mortgage-rate survey this week, “Declining new-home sales and weaker economic indicators gave investors new reasons to worry about the economy. Such worries typically prompt investors to park money in safe havens such as Treasury securities … With four weeks and an entire cycle of economic data before the next scheduled meeting of the Federal Open Market Committee, sentiment about the direction of interest rates and the economy may swing back and forth as worries alternate between economic growth and the outlook for inflation.”

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