Mortgage rates sank to new lows this week as investors contemplated the prospect of bank runs in Europe and disappointing U.S. job growth.
Rates on 30-year fixed-rate mortgages averaged 3.75 percent with an average 0.8 point for the week ending May 31, Freddie Mac said in releasing the results of its weekly Primary Mortgage Market Survey. That’s down from 3.78 percent last week and 4.55 percent a year ago, and a new record low in Freddie Mac records dating to 1971.
For 15-year fixed-rate mortgages, rates averaged 2.97 percent with an average 0.7 point, down from 3.04 percent last week and 3.74 percent a year ago. Rates on 15-year loans have never been lower in records dating to 1991.
Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.84 percent with an average 0.6 point, up from 2.83 percent last week but down from 3.41 percent a year ago. Rates on five-year ARMs hit an all-time low in records dating to 2005 of 2.78 percent during the week ending April 19.
For one-year Treasury-indexed ARM loans, rates averaged 2.75 percent with an average 0.4 point, unchanged from last week but down from 3.13 percent a year ago. Rates on one-year ARMs hit an all-time low in records dating to 1984 of 2.72 percent during the week ending March 1.
Mortgage-backed securities guaranteed by the government fund most U.S. home loans, and investors see them as a safe haven in times of uncertainty. Increased demand for mortgage-backed securities and similar investments, like Treasurys, pushes long-term interest rates down.
"Market concerns over tensions in the eurozone led to a decline in long-term Treasury bond yields helping to bring fixed mortgage rates to new record lows this week," Freddie Mac Chief Economist Frank Nothaft said in a statement.
The European debt crisis has raised the cost of government borrowing for countries including Portugal, Ireland, Italy, Greece and Spain. Financial aid for those countries has been tied to austerity measures that voters may ultimately reject.
Although Irish voters look ready to approve a referendum that would allow the country to continue receiving aid from the European Union, the outcome of Greece’s June 17 general election "is too close to call," Reuters reports.
Spanish banks lost $82 billion in deposits before Spain’s fourth-largest lender was nationalized in May as account holders moved money abroad, Reuters said.
European Central Bank President Mario Draghi today called for a joint guarantee for bank deposits across the eurozone to fight bank runs, and the European Commission’s Olli Rehn said a "genuine stability culture" and a "much upgraded common capacity" — more rescue funds — was needed to "contain common contagion," Reuters reported.
It remains to be seen whether Germany will continue to oppose such measures at a two-day summit meeting set to begin June 28.
In the U.S., unemployment claims rose last week for the seventh time in eight weeks, to a seasonally adjusted 383,000, Reuters reported. Payroll processor ADP said private companies added 133,000 jobs in May, better than the 113,000 seen in April but below economists’ expectations.
Taken together, those events suggested "the U.S. labor market recovery was stalling after a strong performance early in the year," Reuters said.
The National Association of Realtors reported this week that an index measuring pending home sales fell 5.5 percent from March to April, breaking a three-month string of month-over-month gains. But pending sales were still up 14.4 percent from the same time a year ago, and NAR Chief Economist Lawrence Yun said home sales "are on track to see the best performance since 2007."
The Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending May 25 showed demand for purchase loans was down a seasonally adjusted 0.6 percent from the week before, and 3.9 percent from a year ago.