Rate Outlook Brightens

[May 7, 2007.]

New home buyers have reason to smile this week. Mortgage rates appear to be on the decline, according to HSH Associates, a New Jersey mortgage information firm. HSH Associates reports that the 30-year fixed-rate loan is closing at an average of 6.37 percent. The company tracks more than 2,000 lenders in a given week.

Meanwhile, Freddie Mac, one of the country's largest home loan agencies, placed the 30-year rate at 6.17 percent, which is a decline from 6.22 percent the previous week. Interestingly enough, Freddie Mac put the rate at 6.22 percent last year around this time.

Freddie Mac's chief economist, Frank Nothaft, told the news media, "Mortgage rates slipped following the latest reports of moderation in inflation rates from the core producer price and consumer price indexes." Taking out food and energy costs, the inflation rate for consumer prices jumped 2.5 percent, the tiniest growth rate since spring of 2006.

Freddie Mac also found that the rate for 15-year fixed rate loans is down from last year, now averaging 5.89 percent. In addition, the rate for one-year Treasury-indexed adjustable rate mortgages is 5.45 percent, which is down from last year's 5.63 percent. The rate is also down for five-year hybrid ARMs where the rate is fixed for the initial 60 payments and adjusts every 12 payments.

Lending experts note that points and other charges must be considered in order to assess the actual cost of a mortgage. A single point equals one percent of the loan amount. Currently, lenders are charging about 0.5 to 0.7 points.

The news on rates is obviously encouraging, but new home buyers are also asked to exercise caution. With the instability of the current economic climate, it is possible that rates will reverse course and will rise again, although the most recent reports are obviously cause for optimism.

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