Average mortgage rates in the United States went down for the first time in five weeks after rising continuously since May. The rates have declined in the wake of a slowing housing recovery, according to several news reports.
The average rate of a 30-year mortgage loan fell to 4.51 percent and that of a 15-year home loan dipped down to 3.54 percent, Freddie Mac said in a statement. Another weekly survey by Bankrate.com showed that while the 30-year loan had witnessed a 0.35 percent drop on an average, the 15-year loan experienced a 0.25 percent average slump since the previous week.
Mortgage rates started rising since Federal Bank Chairman, Ben Bernanke, hinted at the discontinuation of its bond buying scheme. The speculations fuelled the rise in mortgage loans and home buying activity also picked up. The post-rise mortgage rates helped the refinancing market tremendously. Negative equity rates dropped below 25 percent for the first time in the second quarter of 2013.
However, since the rates rose, some homebuyers were pushed out of the market, eventually slowing the recovery. According to the figures released by the National Association of Realtors, home purchases dropped 1.3 percent in July, the highest drop for 2013. Home sales also went down 13.4 percent, the highest fall since October 2012. Millions of homebuyers are also still underwater.
The current housing recovery has been the slowest since World War II. How would further deceleration impact the economy? Will the rising rates drown the already underwater homeowners?
According to several experts, the slowdown is necessary and there is nothing to fear.
"We need to start slowing down the pace of appreciation right now so that when rates go back to 5 percent in 2014, it does not leave us in a situation where home prices look inflated," Stan Humphries, chief economist at Zillow said to Bloomberg.
In a feature in Forbes, Mike Patton explains how the Fed's bond buying, investors concern and demand and supply affect the economy.
"If the economy remains sufficiently weak, the Fed will not reduce it (the bond buying program) anytime soon. Conversely, if the economy begins to strengthen, the Fed will likely begin to reduce its purchases. Both scenarios make investors nervous. And, all this affects the housing market and the economy needs a healthy housing sector to flourish. However, since the government stepped in to try and prevent a total collapse, since the bottom didn't fall out, there was less downside. Hence, a slow and steady housing recovery is not that surprising."
