Rates fall on first economic reports of the yearWednesday afternoon, the Federal Reserve released the minutes of its Dec. 11 meeting, when the Open Market Committee cut the federal funds rate by a quarter of a percentage point, to 4.25 percent. The members of the rate-setting panel seemed to be in accord that the economy was softening. That was hardly shocking news, because the Fed had said in its post-meeting statement that the economy was slowing. The minutes showed that there was no dissent to that viewpoint. As markets digested the Fed minutes, bond yields slid a little more. |
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Mortgage rates plunged in this first week of the year as a drumbeat of poor economic news pounded.
The benchmark 30-year fixed-rate mortgage fell 17 basis points, to 6.14 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.35 discount and origination points. One year ago, the mortgage index was 6.24 percent, and four weeks ago, it was 6 percent.
The benchmark 15-year fixed-rate mortgage fell 21 basis points, to 5.76 percent. The benchmark 5/1 adjustable-rate mortgage fell 17 basis points, to 6.14 percent. The benchmark 1-year adjustable-rate mortgage fell 6 basis points, to 6.1 percent. The 30-year jumbo, for mortgages of more than $417,000, fell 10 basis points, to 7.2 percent.
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| Weekly national mortgage survey |
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| Results of Bankrate.com's Jan. 2, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan: |
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| | 30-year fixed | 15-year fixed | 5-year ARM |
| This week's rate: | 6.14% | 5.76% | 6.14% |
| Change from last week: | -0.17 | -0.21 | -0.17 |
| Monthly payment: | $1,004.16 | $1,371.06 | $1,004.16 |
| Change from last week: | -$18.22 | -$18.63 | -$18.22 |
It's getting ugly
The first economic report of the year was the December manufacturing index from the Institute of Supply Management. The index fell to 47.7 percent -- the lowest reading in almost five years. The index showed a deep decline in new orders to factories. The burgeoning prospect of an economic decline caused bond yields and mortgage rates to fall.
"For the first time since January 2007, the nation's supply managers have told us that the manufacturing sector contracted," economist Joel Naroff, of Naroff Economic Advisors, wrote. "With demand down, production fell and employment was cut. This still didn't stop order books from thinning, an ominous sign. Meanwhile, pressures on costs continue to grow. Ugh! (That's a technical economic term.)"
He called the ISM report "about as ugly as it gets," although he declined to go as far as saying that it had been beaten with an ugly stick.
More hits to bonds
As if the dismal manufacturing index weren't enough, crude oil futures hit $100 a barrel for the first time ever. Markets took that as a recessionary sign, causing bond yields to fall further.
According to the minutes, one member of the rate-setting committee wanted a deeper cut in the federal funds rate. Eric Rosengren, president of the Federal Reserve Bank of Boston, wanted a half-point reduction because he thought "the combination of a deteriorating housing sector, slowing consumer and business spending, high energy prices, and ill-functioning financial markets suggested heightened risk for continued economic weakness."
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