NEW YORK U.S. 30-year fixed-rate mortgages rose for the first time in five weeks while interest rates on adjustable-rate mortgages dropped to record lows, according to a survey released on Thursday by Freddie Mac, the second-largest U.S. mortgage finance company.
While interest rates on mortgages are at or near record lows, demand for home purchase and refinancing loans has been tepid. A weak jobs market and flailing economy continue to weigh on consumer confidence.
Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.21 percent for the week ended October 21, up from the previous week's record low of 4.19 percent, according to the survey.
Rates were also below their year-ago level of 5.00 percent. Freddie Mac started the survey in April 1971.
Meanwhile, 15-year fixed-rate mortgages rose for the first time in 14 weeks and averaged 3.64 percent, up from 3.62 percent last week, which was the lowest since Freddie Mac began surveying this loan type in 1991.
"Mixed inflation signals kept fixed mortgage rates at bay this week," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.
Mortgage rates are linked to yields on Treasuries and yields on mortgage-backed securities.
The Mortgage Bankers Association said on Wednesday U.S. mortgage applications slumped last week.
Freddie Mac said rates on 5/1 ARMs, set at a fixed rate for five years and adjustable in each following year were 3.45 percent, down from 3.47 percent last week, reaching the all-time lowest level since Freddie Mac began tracking this loan type in 2005.
One-year adjustable-rate mortgages were 3.30 percent, down from 3.43 percent last week. The one-year ARM has not been lower since Freddie Mac started tracking it in 1984.
Tom Porcelli, head of U.S. market economics at RBC Capital Markets in New York, said the drop in demand is a reflection of the inability of many homeowners to take advantage of record low interest rates.
"Lending standards are remarkably tight and while there is a strong desire by homeowners to refinance, the mechanism is not allowing them to," he said. "This is the sad truth of the environment we are in right now."
A weak labor market is also playing a large role, he said.
"Home prices could easily fall another 15 percent due to the supply and demand imbalance that is currently in place," he said.
An increase in home loan refinancing may provide a much-needed jolt to the flailing economy as it could portend an increase in consumer spending. By lowering monthly mortgage payments it may also help some homeowners avoid default and foreclosure if their credit is good enough.
Porcelli said "underwater" mortgages -- where the amount owed on the mortgage exceeds the value of the home -- are one of homeowners' biggest banes.
This negative equity makes many of them unqualified for home loan refinancing and prevents some from selling.
"We could not be further away from a recovery in the housing market," he said.
A year ago, 15-year mortgages averaged 4.43 percent, the one-year ARM was 4.54 percent and the 5/1 ARM 4.40 percent.
(Editing by James Dalgleish)