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Mortgage rates stay low

Marcie Geffner

Mortgage interest rates remained in neutral again this week, changing only slightly compared with last week's levels.

Mortgage rates for Jan. 19 2010

The benchmark 30-year fixed-rate mortgage rose 1 basis point this week, to 4.95 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index was 5.15 percent; four weeks ago, it was 4.96 percent.The benchmark 15-year fixed-rate mortgage rose was unchanged, at 4.29 percent. The benchmark 5/1 adjustable-rate mortgage fell 2 basis points, to 3.86 percent.

Weekly national mortgage survey

Results of Bankrate.com's Jan. 19, 2010, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

30-year fixed 15-year fixed 5-year ARM
This week's rate: 4.95% 4.29% 3.86%
Change from last week: +0.01 N/C -0.02
Monthly payment: $880.72 $1,244.60 $774.48
Change from last week: +$1.00 N/C -$1.88

Demand for U.S. debt

Mortgage rates aren't tied to U.S. Treasury notes, but the two naturally tend to move in tandem and have done so in recent weeks.A drop in China's ownership of U.S. government debt could be a contributing factor to the rise in Treasury yields, says David Basaleli, senior vice president at Guaranteed Home Mortgage Co. in White Plains, N.Y.Last week, the Department of the Treasury reported that China, which holds more U.S. debt than any other nation, cut its holdings to $895 billion at the end of November, a drop of $11.2 billion from the prior month. Altogether, foreign nations owned a grand total of $4.3 trillion of U.S. debt.The Federal Reserve's program of buying Treasuries, known as "quantitative easing" or "QE2," acts as a counterbalance, increasing demand for U.S. debt. The Fed's effort has been aggressive, Basaleli says, but perhaps not enough to outweigh China's shrinking position.The wild card is Europe's debt crisis. Short-term remedies act as a temporary and periodic relief valve, but don't resolve the long-term underlying problems."There's no doubt that the European crisis is bad," Basaleli says. "What changes is the immediate crisis. Are they going to be able to sell the debt tomorrow? Are they going to be able to sell the debt next week? As these offerings go well for Europe, it doesn't mean the crisis is over. It just means the immediate crisis is pushed down the road."

Employment still weak

Closer to home, the Department of Labor reported that unemployed workers filed 445,000 initial claims for jobless benefits in the week ended Jan. 8. That was up 35,000 from the prior-week total of 410,000. The four-week moving average also ticked up by 5,500 claims from 411,000 to 416,500.Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association in Washington, D.C., noted in a statement that "mixed data on the job market continue to cloud the outlook for the economy."Frank Nothaft, chief economist at Freddie Mac in McLean, Va., said, also in a statement, that the December employment report "implied that the labor market is still in a sluggish recovery."Weak employment and a slow recovery dampen fears of future inflation and keep interest rates in check.

Rates remain low

And so, interest rates remained attractive for homebuyers and homeowners in a position to refinance, though how long the lows will last is still anybody's guess."Although rates are off the lows of November, they're still historically very very low, and a number of factors could work against interest rates in the next few months," Basaleli says.Expectations of modest inflation, further U.S. stock market gains -- which would prompt investors to shift money from equities to bonds -- and the prospect that foreign governments may stop buying U.S. government debt could all trigger higher rates.