Mortgage Rates Decline in Previous Week-But So Did Home Prices & Other Indicators

The average rate for a 30 year fixed mortgage declined in the last week to 4.78%, following lower Treasury bond yields. Reports on business conditions and house prices also showed declines in the same period.
The S&P Case-Shiller Home Price Index showed a 3.3% decrease in home prices in February from the same period a year ago. This level is just a bit above the crisis low hit in April of 2009. Rates for 15 year mortgages dropped to 3.97% from 4.02% the week before. Five year ARMs dropped to 3.51%, and one year ARMs were down to 3.15%.
The big question is how foreclosure inventories will fare in the coming months. While unemployment is at about the same rate as early 2009, at least jobless claims are dropping now, rather than rising as they were then. If this trend continues, economic conditions should continue to improve and it is expected that foreclosures will not rise dramatically.
Of course, this boon of very low home prices that’s great for investors isn’t helping the mortgage lenders and banks. Further erosion of home prices is causing some banks to have to raise reserves, a negative impact on profits. Writing down the value of bank owned properties puts more pressure on bank profits and a tougher loan climate could follow.