Rates on 30-year mortgages dropped below 6 percent this week for the first time in more than a month, reflecting aggressive efforts by the Federal Reserve to cut interest rates to protect the economy from a serious recession.
Freddie Mac, the mortgage company, reported today that 30-year fixed rate mortgages averaged 5.87 percent this week. That was down from 6.13 percent last week and marked the first time that 30-year rates have fallen below the 6 percent level since the week of Feb. 14.
Rates on 30-year mortgages dropped below the 6 percent threshold in the second week of January and stayed there for six straight weeks as the sharp economic slowdown stirred concerns about a possible recession.
In the past month, bond markets had grown worried about rising inflation pressures that are coming at the same time that the economy is slowing. But the meltdown of Bear Stearns, the nation's fifth largest investment bank, over the weekend prompted the Fed to move aggressively to pump money into the financial system and slash a key lending rate by three-fourths of — percent on Tuesday.
Analysts said all of these Fed efforts had helped to ease pressure on interest rates that had been generated by higher inflation readings. And helping in that area, the government reported last week that consumer prices were unchanged in February, a significant moderation from the January readings, while retail sales fell by a larger-than-expected amount in February, reinforcing worries about economic weakness.
"Slowing consumer spending and weak employment conditions are among the concerns behind the Fed's decision to lower the target federal funds rate," said Frank Nothaft, chief economist at Freddie Mac.
Other categories of mortgages also showed declines this week.
Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing, fell to 5.27 percent this week, down from 5.60 percent last week.
For five-year adjustable-rate mortgages, rates dipped to 5.56 percent, compared with 5.58 percent last week.
Rates on one-year, adjustable-rate mortgages were the only category to show an increase, edging up to 5.15 percent, compared to 5.14 percent last week.
The mortgage rates do not include add-on fees known as points. For 30-year and 15-year mortgages, the nationwide average fee was 0.5 point. Five-year mortgages carried a 0.9 point average fee while one-year mortgages had a 0.8 point average.
A year ago, rates on 30-year mortgages stood at 6.16 percent, 15-year mortgage rates averaged 5.90 percent, five-year adjustable-rate mortgages were 5.91 percent and one-year adjustable-rate mortgages were at 5.40 percent.
Housing has been suffering through a severe slump that has dragged down house prices in many parts of the country. The fallout is hitting both homeowners and the economy at large, raising worries about a possible recession. The downturn is housing is being worsened by a severe credit squeeze with lenders tightening standards in the face of soaring mortgage foreclosures.
Mortgage rates drop big