McLEAN, Va. - The average rate on a benchmark 30-year fixed mortgage fell to 5.98 percent this week, the first time since April that it has been below 6 percent, Freddie Mac said yesterday.
The decline from 6 percent a week earlier was the fifth straight decrease. The rate was the lowest since 5.94 percent for the week that ended April 23, and was four basis points above the year-earlier level, Freddie Mac said.
Mortgage rates within a percentage point of record lows have helped underpin home sales and construction over the past year. Freddie Mac, the second-biggest purchaser of U.S. mortgages, this month raised its forecast for home sales this year to a record 7.33 million, from the previous expectation of 7.25 million.
"Mortgage rates still remain at a very low level historically," said Rick MacDonald, an economist at Action Economics, from his office in Los Angeles. "As long as interest rates remain low, as long as the job market remains strong, the housing market historically has been a good sector."
Home loan rates should increase at a "measured" pace the rest of the year as the economy continues to expand, Freddie Mac Chief Economist Frank Nothaft said.
Mortgage rates move in line with yields on U.S. Treasury notes. The yield on the 10-year Treasury is expected to rise to 5.1 percent by the fourth quarter from an average 4.29 percent in the year's first half, economists say.
The yield on the 4.75 percent note due May 2014 fell to 4.46 percent yesterday, from 4.47 percent Wednesday.
At the 30-year fixed rate, the monthly payment on a $100,000 loan would be $598.27. That compares with $549.73 in June 2003, when mortgage rates reached a record low of 5.21 percent.
The one-year adjustable rate rose to 4.12 percent this week from 4.02 percent, Freddie Mac said. The 15-year fixed rate declined to 5.39 percent from 5.40 percent.
"As interest rates go up, the economy does better," said Donald Tomnitz, chief executive of D.R. Horton Inc.
"That is the best thing that could happen for our industry, because this creates more buyers for us."
D.R. Horton, the third-largest U.S. homebuilder by market value, raised its profit forecast for the fiscal year to as much as $3.85 a share from an earlier estimate of $3.55.
Builders such as D.R. Horton and industry leader Lennar Corp. likely will sell 1.17 million new homes this year, a gain of 7.4 percent from last year, the National Association of Home Builders in Washington said this month.
The U.S. economy has added 1.27 million jobs this year, and new claims for unemployment benefits have averaged 345,600 a week, down from 402,000 in 2003. Federal Reserve Chairman Alan Greenspan said Tuesday that July job growth has been "somewhat better" than June, when employment grew less than forecast.
Greenspan, testifying before Congress this week, also said that the economy will most likely shake off recent "softness" and resume a robust expansion that will require higher interest rates to stem inflation.
Last month, the Fed raised its benchmark lending rate 25 basis points to 1.25 percent. Greenspan indicated that a "measured pace" of rate increases should assist "a relatively smooth adjustment of businesses and households to a more typical level of interest rates."
Countrywide Financial Corp., the biggest U.S. mortgage lender, said yesterday that its home lending tumbled 23 percent as rising interest rates discouraged homeowners from refinancing loans.
The lender's total loan production volume last quarter declined to $100 billion.