Mortgage rates fall for the week of May 19, 2014

Posted by  on May 27, 2014

It's been another egg-on-face week for those experts who continue to predict the imminent rise in home-loan rates. For the fourth week in a row, those for all types of 30-year fixed-rate mortgages (FRMs) have drifted downward, averaging 4.19 percent (with 0.15 points) over the week ending Friday, May 23, according to HSH.com. That's the lowest rate since last June.

Mortgage rates falling across the board

It's not just 30-year FRMs that are reaching recent lows. At 3.43 percent with 0.10 points, you have to go back to Halloween 2013 to see rates for 15-year FRMs matched, and to last June to find them bettered. Meanwhile, those for 30-year 1/1 adjustable-rate mortgages (ARMs) are at their lowest for 16 months, averaging 2.71 percent with 0.11 points during week ending May 23. Over a slightly different period (the week ending last Tuesday), conforming 5/1 ARMs stood at 3.08 percent with points of 0.11.

All this means home loans are highly affordable at the moment. Our live database of current mortgage rates can help you find the best mortgage rates in your area.

Why the downward drift?

Overall, economic data have been pretty good recently, which would normally push mortgage rates up. However, a number of other factors also affect interest levels, and some of these seem currently to be stronger influences than the wider economy. In particular:

  1. The Federal Open Markets Committee (FOMC), a part of the Federal Reserve, has previously signaled that it intends to keep its own rates where they are (close to zero) for some time. On Wednesday, the minutes of its last meeting were published, and, while these showed a lively internal debate about the ending of stimulus activity and the timing of future rate rises, their main takeaway was an intention to maintain the status quo for some months yet. And, when changes do eventually come, the FOMC reckons it's going to manage those so as to cause as little disruption as possible. All of this may have reassured mortgage lenders and investors that current levels of home-loan rates are sustainable for a while yet.
  2. The law of supply and demand may also be playing its part. Although you'd expect recent, historically low mortgage rates to be generating high demand, sales of existing homes actually declined for seven of the eight months following last June's peak. However, this drag may be short-lived: These sales edged up in April, and Comerica Bank's weekly economics bulletin, published May 23, said, "We expect that improving economic conditions across most U.S. localities will fuel ongoing gains in existing home sales."

None of this suggests mortgage rates are going to stay low for very long -- nor even that they won't go up a bit next week. In fact, if you want to predict next week's rates, you could either ask an economist or toss a coin. Both are equally likely to be right. Should you take the plunge and compare mortgage rates now, or should you wait to see if they dip lower? That depends on how happy you are to bet on your coin coming down heads or tails.

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