Tom Silva
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Mortgage Interest Rates Decline, But So Do New Home Sales

Even though the rate on a 30-year fixed-rate mortgage has dipped below the five percent mark – to 4.95 percent —  new home sales slid by 12.6 percent in January.

The mortgage rate declined five percent last week and was 5.05 percent just one year ago.  The slightly less popular 15-year fixed-rate mortgage also fell, averaging 4.22 percent, down from 4.27 percent last week.  The mortgage averaged 4.4 percent last year.  Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.8 percent this week, down from 3.87 percent last week and 4.16 percent a year ago. One-year Treasury-indexed ARMs averaged 3.4 percent, up slightly from 3.39 percent last week.  The ARM averaged 4.15 percent one year ago.

“Fixed mortgage rates eased again this holiday week amid mixed inflation data reports,” said Frank Nothaft, chief economist of Freddie Mac.  “Although the core consumer price index for January rose slightly above the market consensus, house prices fell 4.1 percent in the fourth quarter of 2010 compared to the same period in 2009, according to the S&P/Case-Shiller National Index.  In addition, the level of the index was the lowest since the fourth quarter of 2002.”

Yields on 10- year Treasury notes, which are benchmarks for some consumer loans, have fallen to a three-week low.  The decline has sent mortgage rates down from a 10-month high, making home buying more affordable.  “In times of trouble, money runs to places where it can be parked safely, like Treasuries,” said Keith Gumbinger, vice president at HSH Associates, a consumer-loan data publisher.  “Mortgage rates tend to follow that.  Consumers will simply enjoy this little dip we have here before the economy picks up,” Gumbinger said.  “They’ll take any decline in rates they can get.”

Last year was the fifth consecutive year that new-home sales fell after hitting record highs during the housi Americans purchased 322,000 new homes in 2010, the smallest amount in 47 years.  Snowy winter weather is likely to have played a role in slowing January sales, although the industry has been under pressure since the housing bubble burst in 2006.  In January, 49 out of 50 states had snow cover; several southern states were hit hard by ice and snow, which certainly forced prospective buyers to put off purchases. Foreclosures are expected to increase about 20 percent in 2011, with prices falling an additional five percent and bottoming out in the spring, according to RealtyTrac Inc., an Irvine, CA-based group that tracks the market.

“While poor weather conditions likely played a part in keeping potential buyers on the sidelines this January, we do expect consumer demand to improve somewhat along with job-market gains heading into the spring buying season,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB). “However, with the already-thin inventory of new homes for sale continuing to decline and the consistent unavailability of construction credit, the question is whether builders will be able to meet the improving demand as it emerges.”

“This latest report shows new-home sales activity returning to a rate that is consistent with the low level of activity seen in the 3rd and 4th quarters of 2010,” said NAHB chief economist David Crowe.  “Builders are clearly facing a competitive disadvantage with regard to the large inventory of existing homes at a time when they are unable to replenish their own inventories due to a lack of available financing.”