Mortgages drop, but are they due for a bounce?

Mortgage rates dropped for the second week in a row amid mixed economic news abroad and in the United States. But don't expect this to become a trend because it is unlikely that rates will drop much further, experts say.

30 year fixed rate mortgage 3 month trend

This week's rates

  • The benchmark 30-year fixed-rate mortgage fell to 4.43 percent from 4.47 percent the previous week, according to the national survey of large lenders. One year ago, that rate stood at 3.61 percent. Four weeks ago, it was 4.46 percent. The mortgages in this week's survey had an average total of 0.33 discount and origination points.
  • The benchmark 15-year fixed-rate mortgage fell to 3.48 percent from 3.52 percent last week.
  • The benchmark 5/1 adjustable-rate mortgage fell to 3.32 percent from 3.34 percent. The benchmark 30-year fixed-rate jumbo fell to 4.43 percent from 4.48 percent.

Weekly national mortgage survey

Results of's April 16, 2014, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:4.433.483.32
Change from last week:-0.04-0.04-0.02
Monthly payment:$829.18$1,177.94$724.44
Change from last week:-$3.91-$3.24-$1.83

Are you in a gambling mood?

Rates have stayed at these low levels much longer than many people in the housing industry had expected. How long will they last? That's the million-dollar question, and mortgage experts say potential borrowers shouldn't stretch their luck by waiting.

"I'm shocked that rates have gotten better over the last week," says Derek Egeberg, a branch manager for Academy Mortgage in Yuma, Ariz. "It might be partly because of what's going on in Ukraine and Russia."

The turmoil in Ukraine has made investors anxious and the Russian economy took a hit as many of those investors pulled money out of the country. The United States is still perceived by investors as one of the safest places to park their money, despite some recent mixed economic news.

Whenever investors seek safety in U.S. Treasuries and mortgage bonds, the yields on those investments tend to fall. Mortgage rates normally follow that trend.

Low rates won't last forever

Rates are far below their historical averages, but many first-time homebuyers think they could be better, Egeberg says.

"Many of the young couples I talk to assume rates should be in the 3s and low 4s," he says. "When I tell them that I bought my first home in 1999 and paid 7 percent they don't think rates will ever be at 6 or 7 percent again. They have never experienced that."

Rates won't reach those levels overnight, but they will begin to creep up and you might see them reach 5 percent by the end of this year, he adds.

The Fed will determine when rates rise

As the U.S. economy strengthens, the Fed likely will continue to trim its bond-purchase program, which was created to keep rates low and stimulate the economy. Eventually, the Fed will also raise the federal funds rate, which has been near zero since the financial crisis in 2008.

At that point mortgage rates will return to the norm that the younger generation of first-time homebuyers hasn't experienced. Yet.

For now, borrowers don't have to worry about rates skyrocketing as there's economic pressure on the Fed to keep rates low, says Michael Becker, a mortgage banker for WCS Funding in Baltimore.

"I think there's still some concern about the housing market," he says. "The housing starts data was somewhat disappointing, and yesterday, homebuilders' sentiment was lower than expected."

Housing reports: Not good enough

The National Association of Home Builders' monthly index rose slightly in April to 47 from 46 in May, the association said Tuesday. But economists had expected a higher reading of at least 49. The index measures home builders' confidence in the single-family market. An index below 50 indicates that builders still view sales conditions as poor. The index was above 50 during the second half of last year.

Builders broke ground on more homes in March than in February, the Commerce Department reported on Wednesday. But economists were expecting more. Housing starts climbed 2.8 percent to a seasonally adjusted annual rate of 946,000, about 24,000 fewer homes than economists had expected to see.

"Yes, housing starts improved in March, the second month of gains after a collapse in January," says Joel Naroff, president and chief economist of Naroff Economic Advisors. "But the level was not nearly as high as they were at the end of last year."

The construction of new homes represents only a small segment of the market, but these numbers are still well below normal.

Shortage of homes

The short supply of homes available for sale continues to hurt the housing market and homebuyers, Becker says.

"I am working with buyers who are preapproved, but the homes they want -- there are multiple offers on them," he says.

Take advantage of low rates now

The lack of inventory of homes for sale remains a big issue, Moulton says.

For those who have found a home or are looking into refinancing their mortgages, now is a good time to lock a rate, he says."

"Anytime rates have improved for a long stretch like they have in the last week or so, I would lock," he adds.

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