Interest rates on long-term mortgage loans dropped to near record lows in the past week, according to data from mortgage finance company Freddie Mac. And it looks like new all-time lows could be possible in the coming weeks if the Federal Reserve begins its next round of quantitative easing.
The average rate on a 30-year fixed rate mortgage fell to 3.55 percent, excluding points during the week ended September 6, down from 3.59 percent the week before. One year ago, the average rate was 4.12 percent. Meanwhile, rates on 15-year fixed rate mortgages were unchanged at 2.86 percent.
“Mortgage rates were little changed over the holiday week amid mixed economic data releases,” said Frank Nothaft, Freddie Mac vice president and chief economist in a statement. “Although consumer spending rose 0.4 percent in July, representing the largest gain in five months, the core price index was unchanged suggesting little threat of inflation. Consumer confidence picked up slightly in August according to the University of Michigan, but remained below this year’s peak in May. And the manufacturing industry contracted for the third consecutive month in August.”
And all of that mixed data, combined with a slower jobs growth rate could spur the Fed to action soon, which could put downward pressure on interest rates. The Labor Department reported that 96,000 jobs were added to the economy in August, well below the pace that most economists expected. Also, the unemployment rate remains above 8 percent.
“The economy just isn’t growing fast enough to generate enough jobs,” says economist Paul Ashworth of Capital Economics in a USA Today article.
So, we are very likely to see the Fed sell off more government bonds to pump more money into the market. This will be the third time the Federal Reserve has done this since the financial crisis and one study found that QE1 and QE2 brought mortgage interest rates down 0.8 percent. If that happens again, we could see rates falling to new record lows. While that would continue to keep mortgage loans very affordable, overall its a bad sign for the economy.