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Weekly Mortgage Outlook: May 4

By Brian O’Connell
Despite some economic signs that mortgage rates could be heading down again, this week, they remain stable, with the week-to-week rates for 30-year fixed mortgages remaining at 5.06%, while rates for 15-year-fixed mortgages moved from 4.73% last week to 4.77% this week. The big trends this week were in short-term adjustable-rate mortgages, with three-year ARMs falling to 4.93% from 5.06%, and one-year ARMs plummeting from 4.69% to 4.55%.

The longer trend toward lower rates, boosted by the Federal Reserve’s refusal last week to raise rates to battle a potential inflationary environment, seems to be baked into the economic mix for at least a few weeks longer. That suggests good buying opportunities for bargain hunters with decent credit.

But has it actually turned out that way? In actuality, low mortgage rates have not translated into the house-buying stampede that economists and government officials had thought it would. With Freddie Mac (Stock Quote: FRE) reporting 30-year fixed mortgage rates below 4.80% last week, you’d think a stamped would indeed be the case.

But homebuyers seem to be waiting for housing prices to fall even further. The housing analyst firm Case-Schiller reported last month that the average home prices in 20 big U.S. metropolitan areas are still falling, and significantly. Some U.S. mortgage industry insiders see housing prices falling another 15% (although, to be fair, a growing number of housing experts say housing prices have stabilized).

But if the Case-Schiller figures are to be believed, we still have a ways to go before the U.S. housing market stabilizes. With mortgage rates at long-time lows, that could be the reason people are biding their time and waiting for home prices to fall even further.

Once you look at the facts on the ground, you really can’t blame the fence-sitters. Just about every economic forecast throughout the rest of 2009, and even going into 2010, estimates that the unemployment rolls will continue to swell. If they’re correct, and the unemployment number rises from its current perch at 8.6% to 9% or 10%, as many economists predict, that will mean millions more homes with “for sales” signs on the front lawn, driving housing prices even lower.

But American consumers, as usual, may have the last word. One outlier that deserves closer scrutiny in regards to mortgage rates is last Friday’s consumer confidence number.

With the Reuters/University of Michigan Surveys of Consumers index of confidence rising to 65.1 in April from 57.3 in March, consumers are showing signs of shrugging off the rust and becoming more bullish about spending, the stock market, and the economy in general. 

That fact should drive more money out of “safe haven” investments and into the stock market.  Or, it could even trigger a domino effect that would elevate stock prices, but keep key bond levels down, ultimately forcing mortgage lenders’ hands to raise mortgage rates to potential homebuyers.

For now, though, it’s smooth sailing and still a good time to buy a house.

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