Posted on: Friday, May 6, 2005

Key mortgage rates decline again

Associated Press

WASHINGTON — Rates on 30-year mortgages fell for a fifth consecutive week even as the Federal Reserve was boosting short-term rates.

Mortgage giant Freddie Mac reported yesterday in its weekly survey that rates on 30-year, fixed-rate mortgages averaged 5.75 percent this week, down from 5.78 percent last week.

The decline pushed the 30-year rate down by more than a quarter-point from the 6.04 percent high for this year reached at the end of March.

Analysts attributed this week's drop to further evidence that the economy slowed significantly in March, a slowdown that is expected to keep the Federal Reserve from abandoning its gradual approach to raising interest rates. The Fed on Tuesday boosted a key short-term rate for the eighth time since last June, raising its target for the federal funds rate by a quarter-point to 3 percent.

"With some economic indicators showing signs that the economy is experiencing a soft spot at the moment, low mortgage rates will ensure that housing activity will continue to flourish throughout the spring buying season," said Frank Nothaft, Freddie Mac's chief economist.

The housing market has continued at a strong pace this year, reflecting the historically low mortgage rates. The government reported last week that sales of new homes shot up to an all-time high of 1.43 million units in March.

Analysts believe that mortgage rates will resume rising in the months ahead but at a gradual pace that would leave the 30-year mortgage at around 6.5 percent by the end of the year.

Rates on other mortgages were mixed this week, Freddie Mac reported.

Rates on 15-year, fixed-rate mortgages, a popular option for refinancing, declined along with the 30-year rate, falling to 5.31 percent, down from 5.33 percent last week.

However, rates on one-year adjustable-rate mortgages edged up to 4.22 percent from 4.21 percent last week.

Five-year hybrid adjustable rate mortgages were up as well, averaging 5.31 percent this week, compared with 5.20 percent last week. These hybrid mortgages have a fixed rate for five years and then adjust each year after that.

The nationwide averages for mortgage rates do not include add-on fees known as points. The one-year ARM carried a fee of 0.7 point while the three other categories all carried a fee of 0.6 point.

A year ago, 30-year mortgages averaged 6.12 percent, 15-year mortgages were at 5.47 percent and one-year ARMs averaged 3.76 percent. Freddie Mac does not have historical data on the five-year ARM, which it began tracking this year.