Posted on: Friday, January 7, 2005

Mortgage rates dip despite Fed's rate hikes

By Jeanine Aversa
Associated Press

WASHINGTON — Mortgage rates around the country moved lower this week, marking a good start to a new year of home buying.

Freddie Mac's weekly survey of mortgage rates released yesterday showed that rates on 30-year, fixed-rate mortgages averaged 5.77 percent for the week ending Jan. 6. That was down from last week's 5.81 percent.

For all of 2004, rates on benchmark 30-year mortgages averaged 5.84 percent, second only to last year's 5.83 percent — the lowest annual rate on record with Freddie Mac, the Federal Home Loan Mortgage Corp.

Low mortgage rates have powered home sales. Analysts believe sales hit a record high for all of 2004. The housing market is expected to post another good year in 2005, analysts said.

Long-term mortgage rates have remained well-behaved even as the Federal Reserve has boosted short-term interest rates five times in 2004. That's because inflation, while creeping higher, is not currently viewed as an immediate danger to the economy, analysts said.

"Economic news seems to reflect steady growth and low inflation, placing little upward pressure on interest rates," said Amy Crews Cutts, Freddie Mac's deputy chief economist.

"Although we expect mortgage rates will start to trend gently upward over the year, 30-year, fixed-rate mortgage rates should stay under 6 percent, at least through the first quarter," she said.

Some analysts believe rates on 30-year mortgages could climb to around 6.5 percent by the end of this year, which would still be considered low by historical standards. A few think rates could hit 7 percent.

Rates on 15-year, fixed-rate mortgages, a popular option for refinancing, dipped this week to 5.21 percent, from 5.23 percent last week. Rates on one-year adjustable-rate mortgages fell to 4.10 percent this week, from 4.19 percent.

Freddie Mac added another type of mortgage to its weekly survey: a five-year, "hybrid" adjustable- rate mortgage. It's fixed for five years and then adjusts each year thereafter. That rate averaged 5.03 percent this week.

The nationwide averages for mortgage rates this week do not include add-on fees known as points. The 30-year and one-year adjustable mortgages each carried a 0.7 point fee. Fifteen-year mortgages carried a 0.6 point fee and five-year adjustables carried a 0.5 point fee.

A year ago, 30-year mortgage rates averaged 5.87 percent; 15-year mortgages, 5.17 percent; and one-year ARMs, 3.76 percent.