For the 10th week in a row, the national average on 30-year, fixed-rate mortgages continued to hover in the mid- to upper-5 percent range, after gradually dropping from the year's high of 6.34 percent in May, according to weekly surveys by the Freddie Mac corporate mortgage company.
The average rate on a 30-year, fixed-rate mortgage Thursday was 5.74 percent with an average 0.6 percent upfront fee. The average rate is near the October 2003 average of 5.95 percent, based on Freddie Mac's surveys.
Although local lenders agree that slow economic growth has contributed to steady rates, they are mixed on how the upcoming presidential election may affect the stock market and ultimately, mortgage rates.
"Many people think they will go up because of the election, but they probably won't," said Tom Ernst of Catamount Financial Services Inc.
The prime lending rate, which is the minimum short-term interest rate banks charge their most credit-worthy clients, likely will have more of an influence on mortgage rates than the election, he said.
In an upward pattern, the prime rate has increased the borrowing cost for corporations, which causes companies' performance to go down. As a result, investors put their money into treasury bonds instead of the stock market. As the value of the bonds increases, mortgage rates drop, Ernst said.
"As long as corporations don't do well, mortgage rates will stay flat," said Ernst, who expects the rates will remain steady until there are signs corporate performance is improving, which won't be apparent until the end of the fourth quarter and 2004.
Fixed mortgage rates also are influenced highly by the buying and selling of mortgage bonds issued by companies such as Freddie Mac and Fannie Mae, Amy Flint of GMAC Mortgage said.
As more people invest their money in mortgage bonds instead of the stock market, mortgage rates stay low, she said.
"The more people invest in the stock market, the higher the mortgage rates," Flint said.
Flint and other lenders agree that uncertainty or surprises in the markets can influence heavily what happens to mortgage rates.
In that regard, monthly job reports released by the U.S. Department of Labor have moved mortgage rates more than anything else this year, she said.
In May, for example, rates jumped when jobs went up more than expected. Conversely, rates began to drop in August when the jobs report revealed fewer jobs than expected, she said.
Responding perhaps to positive jobs reports, Federal Reserve Chairman Alan Greenspan proceeded to raise the Federal Funds rate, a short-term overnight lending rate between banks, to combat inflation three times since June.
The response of various factors sometimes pushes up mortgage rates, but the last rate hike to 1.75 percent had little effect on mortgage rates.
"There's not been enough good growth news to cause upward pressure in inflation," Peter Smith of First Western Mortgage Services Inc. said, adding that there has not been reason to say Greenspan would raise the Federal Funds rate faster than he has.
What is harder to predict, however, is the outcome of the presidential race, which indicates President Bush and Democratic candidate John Kerry are neck and neck in the polls.
That uncertainty can have a dampening effect on the stock market, Smith said.
"I think you can expect a lot of volatility. If one particular party gets into power, it might be better for the stock market and bad for mortgage rates," she said, adding that some of the effects won't register until the elected president proposes his economic programs.
In the meantime, the rates now are good and low for buying a house or refinancing, lenders said.
"These rates have a lot more space they can move up than they can move down," said Flint, adding that the historical average on a 30-year, fixed-rate loan is 8 percent.
"Though it's hard to predict, if you are comfortable with payments at rates they are now but would not be comfortable with rates higher than they are now, I would lock in," she said.
Regardless of mortgage rates, Smith said it's important buyers only purchase homes when they are confident.
"My advice is always buy your home when you're ready to buy, not based on mortgage rates," he said.
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