After a year-long slide, 30- and 15-year mortgage rates hit their lowest levels on record this week, reflecting a sluggish economy, a lack of inflation and the Federal Reserve's aggressive stance on interest-rate cuts.
"Low inflation is always good for bonds and mortgages,'' said Stuart Hoffman, chief economist for PNC Financial Services in Pittsburgh.
Thirty-year mortgage rates stood at an average 6.45 percent in the week ending Nov. 9, the lowest level since mortgage finance giant Freddie Mac began tracking them 30 years ago. The rate was down from 6.56 percent last week.
Rates on 15-year mortgages reached their lowest level in the 10 years Freddie Mac has tracked them, averaging 5.94 percent, down from 6.04 percent last week.
One-year adjustable rate mortgages, or ARMs, rose slightly to 5.30 percent, from an average 5.26 percent in the week ended Nov. 2.
A year ago, 30-year mortgages averaged 7.79 percent, 15-year mortgages 7.44 percent and ARMs 7.23 percent.
Drag Effect on the Economy
Recent weak economic data, such as last week's declining employment figures, falling oil prices, and low inflation fears, played a large role in bringing rates down to record lows, economists said.
The Labor Department said on Friday that U.S. non-farm businesses shed 415,000 workers in October -- the biggest blow to the job market in more than two decades -- and the jobless rate hit 5.4 percent, its highest level in nearly five years.
"That news (on employment), along with a slowdown in consumer spending and low consumer confidence, is having a drag effect on the economy, which allows mortgage rates to fall further, as they did this week,'' Freddie Mac chief economist Robert Van Order said in a statement.
Van Order said the Federal Reserve's 10th interest rate cut this year, made on Tuesday, would most likely push short-term rates such as ARMs down, while the 30- and 15-year rates should remain low.
"Next week's survey should reflect the Fed's recent actions in capturing a lower one-year ARM rate,'' Van Order said. ''Further, long-term mortgage rates will remain around 6.5 percent at least through the year, helping to keep the housing industry resilient.''
The chief economist for Fannie Mae, another large mortgage-market player, said the drop in mortgage rates has stimulated not just a near-record level of home loan refinancing, but strong home buying as well.
"Mortgage rates have an impact on people's buying decisions, not just on refinancings,'' Fannie Mae's David Berson said.
Low mortgage rates and the housing market activity they spur should cushion the nation's economic downturn, he said.
Long Bond's Demise Played a Role
Mortgage rates have been low all year as concerns about economic weakness have greatly overshadowed inflation fears. The benchmark 10-year Treasury bond, which influences the 30-year mortgage, was yielding 4.19 percent at the close of trading on Wednesday.
"Inflation numbers are coming down and people's expectations of inflation have come down rapidly,'' PNC's Hoffman said.
The yield on 10-year Treasuries may have been helped somewhat by the government's recent announcement it will suspend auctions of 30-year Treasury bonds due to declining interest, he added.
Freddie Mac said lenders charged an average 0.8 percent in fees and points on 30-, 15- and one-year mortgages. Points charged on the 30- and one-year rates were down from 0.9 percent last week, while points on the 15-year rates remained unchanged.
Freddie Mac and Fannie Mae are corporations chartered by Congress that buy mortgages from lenders and package them into securities for investors.
The news comes only a day after the Mortgage Bankers Association of America (MBA) announced that refinancing activity reached a near-record level last week, while applications for purchases surged to their highest levels in over three months.
That, combined with a leap in home purchasing activity, left mortgage bankers busier than they've been in at least the last 10 years, the MBA said.
Reuters contributed to this report.