Mortgage rates decline again

Many economists expect mortgage rates won’t go much lower.

WASHINGTON (AP) — Rates on 30-year mortgages dropped for a third straight week to the lowest level since the summer of 2005 as worries intensified about the current economic slowdown.

Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 5.69 percent this week.

It marked the second week that 30-year mortgages have been below 6 percent and the third straight weekly decline since rates closed out 2007 at 6.17 percent. This week’s average was the lowest since 30-year mortgages were at 5.66 percent the week of July 14, 2005.

Analysts attributed this week’s decline to continued weak economic statistics which have increased worries that the country could be in danger of tipping into a recession.

The government reported that retail sales fell by 0.4 percent in December, giving retailers their worst Christmas season in five years, while construction of new homes dropped again in December, closing out a year when housing construction plunged by 24.8 percent, the worst showing in 27 years.

Consumer spending is being closely watched at present because it accounts for two-thirds of economic activity. The worry is that consumers battered by the housing slump, falling stock prices and a widening credit crunch may stop spending.

Frank Nothaft, chief economist at Freddie Mac, noted that the declines in retail sales were widespread and had “aggravated concerns about the well being of the economy and exerted downward pressure on mortgage rates.”

Many economists don’t believe mortgage rates will decline much more, however, even with a pledge last week by Federal Reserve Chairman Ben Bernanke that the central bank will cut interest rates further if needed to keep the country out of a recession.

Analysts said Bernanke’s comments did not greatly alter the expectations of bond investors who have already built further rate declines into the prices they are willing to pay for Treasury’s 10-year bond, a key benchmark for long-term interest rates. Many said they believe the 30-year mortgage will move in a narrow range around 6 percent for the rest of this year unless the economy does go into a full-blown recession. If that occurs, they said rates will fall further.

Other types of mortgages also showed declines this week.

Rates on 15-year mortgages, a popular choice for refinancing, dropped to 5.21 percent this week, down from 5.43 percent last week.

Rates on five-year adjustable-rate mortgages declined to 5.40 percent, compared to 5.63 percent last week while rates on one-year ARMs fell to 5.26 percent, down from 5.37 percent last week.

It marked the first time that the 15-year rate has fallen below one-year adjustable-rate mortgages in seven years.

The mortgage rates do not include add-on fees known as points. Thirty-year mortgages carried a nationwide average fee of 0.5 point while 15-year mortgages had a fee of 0.4 point. The five-year and one-year ARMS both had fees of 0.6 point.