During the first two weeks of September 2009, mortgage interest rates have trended downward and are considerably lower than August’s averages. According to mortgage company Freddie Mac, the average rate on a 30-year fixed rate loan last week, excluding points, was 5.07 percent, down from the average for all of August which was 5.19 percent.
Is the lower trend likely to stick around for the rest of the month? It’s always hard to say, especially because there are two big factors this month that might try to pull rates in opposite directions. First, the Federal Reserve recently announced that the amount of consumer credit across the nation dropped by $21.6 billion in July, and credit availability dropped even more than reported in June. The Fed said that after six straight months of decreasing consumer credit figures, this is the largest decline since the Fed started its survey in 1943. What this means for interest rates is that when consumer credit shrinks fewer people are borrowing money, and there are fewer mortgage backed securities (MBS) for investors to buy. As the price for those increases because of a shriveled supply, it could push mortgage rates down as lenders try to attract more borrowers back to the mortgage table.
The second factor, however, is that the Fed has also announced its plans to stop purchasing U.S. Treasury bonds. It has been buying these up throughout the year to pump more liquidity into the markets, but as the economy has started to show signs of life again, the Fed has decided to back off in hopes that the market is beginning to correct itself. Some predict that this move will cause bond yields to rise and bring mortgage rates with them.
So far, rates have moved lower this month, so maybe the consumer credit issue is the more influential factor right now. Rates are near historic lows right now – so in the long run, they really only have one direction to go and that is up. For those who can qualify for funding, now is a great time for a mortgage loan.