Monday, February 26, 2007

Mortgage rates slide again

30-year fixed-rate mortgage rates dropped to 6.22% this week, from 6.30% last week. This is the lowest level since mid-January, when it averaged 6.21%. According to analysts, the drop reflected a relative weakness in the real estate industry, illustrated by reports of slowing new home construction. Housing starts fell 14.3% in January to the lowest reading since 1997, sparking concerns that the declining housing market may have a serious impact on economic growth. The drop was in part due to large numbers of unsold inventories currently on the market.

15-year fixed rates also dropped this week, reaching 5.97%, compared to 6.03% last week. 5-year adjustable rates fell to 5.96% from 6.01 a week earlier. One-year ARMs dropped from 5.52% to 5.49%.

Lower mortgage rates will make new homes more affordable, so there’s hope this will help absorb the oversupply of unsold houses. But will low rates be around for long enough to really influence the market? This week’s drop is definitely caused by changing circumstances, and yet home prices have to drop further before balance is restored. When and how this is going to happen is not entirely clear, as increasing sales volumes tend to push home prices up as well, so if houses begin to sell faster again, sellers won’t be willing to cut prices.

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