Archive for Friday, August 11, 2000

Home mortgage rates on decline

August 11, 2000

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— The nationwide average for 30-year fixed rate mortgages fell this week to the lowest level since late last year as fears lessened that the Federal Reserve will feel the need to boost interest rates further.

Freddie Mac, the mortgage company, reported Thursday that fixed-rate loans dropped to 8.04 percent, the lowest level since 30-year mortgages averaged 7.96 percent for the week ending Dec. 24. Long-term mortgage rates had reached a five-year high of 8.64 percent in May.

Private economists predicted that the fall in long-term rates should hold for the rest of the year; some said rates even could dip below 8 percent before year's end.

"This is good news for families who have been on the fence trying decide whether to make the plunge now and buy a home," said Frank Nothaft, an economist at Freddie Mac.

Nothaft predicted that 30-year rates should remain in a narrow range of 8 percent to 8.25 percent for the rest of the year.

David Lereah, chief economist for the National Association of Realtors, said that 30-year rates may even dip below 8 percent if upcoming economic reports show inflation pressures moderating and the economy slowing.

That would allow the Fed, which during the past 14 months has raised interest rates six times, to remain on the sidelines at the upcoming Aug. 22 meeting and for the rest of the year.

"The Fed may have to resume tightening next year, but with a presidential election coming up I think they are done for this year," Lereah said. "You would have to see some strong growth numbers or some poor inflation numbers for them to start tightening again this year."

Economists were expecting a report today on wholesale prices to show a modest gain of 0.1 percent for July, helped by a big decline in energy prices. In June, surging energy costs had pushed wholesale prices up by a sharp 0.6 percent.

The peak in mortgage rates this year occurred in May, a month when the Fed boosted interest rates for a sixth time, by one-half a percentage point, rather than the central bank's normal quarter-point increase as fears were growing that strong economic growth was starting to trigger inflation pressures.

But in recent weeks there have been signs that economic activity is slowing, including Wednesday's survey from the Fed that reported a slowdown in such key areas as consumer spending, construction and manufacturing.

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