Mortgage rates are moving down this week, pushed by mixed economic signals as mortgage experts cautioned consumers to lock in a mortgage rate and avoid the mistake many made waiting for the mortgage rate market bottom late last year.

Bankrate.com had mortgage rates at 6.5 percent and falling the morning of Jan. 15, following a bond market upturn which pushed yields down and mortgage interest rates too.

"The lock-in issue is critical. Don't make the same mistake twice. You don't have to have the lowest rate in 50 years to make your decision about a loan. Maybe you can trim your expectations and try to get something that's good. Rates are very good right now," said Earl Peattie, president of Morro Bay, CA-based Mortgage News Co..

Rates trended down much of last year and by Nov. 8, Freddie Mac reported a national average mortgage rate at a record low of 6.45 percent. The record vanished in hours, with upward movement as high as a half point in a single day. Rates soon settled in around 7 percent.

"People were floating without a lock and all of a sudden, whoosh, they were gone and the whole thing was over in a couple of days. Even some people who were watching interest rates missed it. The lock-in issue is critical," Peattie said.

A mortgage rate lock -- in writing from the lender, rather than the broker -- guarantees the rate and terms of a loan for a specified period.

In recent days, a number of conditions have converged to help push rates back down to a point where borrowers should now lock hard if they need to refinance, take out a second mortgage or buy a home

Greenspan Speaks

Federal Reserve chairman Alan Greenspan recently indicated the economy may not be strong enough for renewed growth as soon as expected by the second quarter.

"(The) impetus to activity will be short lived unless the demand for goods and services itself starts to rise. On that score, despite a number of encouraging signs of stabilization, it is still premature to conclude that the forces restraining economic activity here and abroad have abated enough to allow a steady recovery to take hold," Greenspan said before the Bay Area Council Conference, in San Francisco last week.

He also said the year-end rise in interest rates wasn't a good sign for the economy if consumers are to spend enough to help end the recession. Consumer spending accounts for at least two thirds of the gross domestic product (GDP) -- a measure of all the goods and services produced in the United States. As goes consumer spending, so goes the GDP. As goes the GDP, so goes the economy.

"For the household sector, which had been a major stabilizing force through most of last year's slowdown, the outlook for demand is mixed. Low mortgage interest rates and favorable weather have provided considerable support to home building in recent months," Greenspan said.

"The recent rise in home mortgage rates, however, is likely to damp housing activity and equity extraction. It is already having an effect on cash-outs from refinancing. Cash-outs rose from an estimated annual rate of about $20 billion in early 2000 to a rate of roughly $75 billion in the third quarter of last year. But the pace of cash-outs has likely dropped noticeably in response to the recent decline in refinancing activity that has followed the backup in mortgage rates since early November," he added.

The bond market has since reacted by pushing into positive territory as investors bank that Greenspan's and other Fed officials' cautious views of the economy will spur another rate cut late this month -- perhaps the last for months to come. Stronger bond prices push yields down and mortgage rates fall along with them.

Retail Sales

Even a recent positive retail sales report, including a favorable adjustment of the October to November numbers, had little impact on bond strength.

Retail sales posted a smaller than expected decline in December, dropping only 0.1 percent from November after falling 3.0 percent from October to November, according to the U.S. Department of Commerce. The department also revised the October-to-November 2001 percent change from a 3.7 percent drop to one of only 3 percent.

Unemployment

The retail report had limited impact on bond strength, however, because the retail numbers were offset by the higher December unemployment rate. Investors are concerned that the growing ranks of unemployed will cause more consumers to retreat from spending -- especially now that the holidays are over.

The number of unemployed continued to rise in December, reaching 8.3 million or 5.8 percent of the work force according to the U.S. Bureau of Labor Statistics.

Heavy job losses continued in manufacturing, transportation, and trade with those losses only partially offset by employment gains in services and government, the bureau reported.

"There has to be something out there that's creating jobs and right now there doesn't seem to be a trend that's upward in jobs. The recovery is still a ways off," said Peattie.

Lender Perspectives

Lenders are also afraid the recovery isn't just over the horizon and are lowering rates to bring consumers back to the bank. Some lenders are also anticipating one more interest rate reduction from the Fed. Supply and demand forces are also evident.

"The rates were artificially raised in December because the lenders could not meet their commitments. Now that they are getting caught up, the rates are going back down. We all thought this would happen," said Joette Joseph, branch manager of Alliance Title Co. in San Jose, CA.

Mortgage rate movements have more implications for those looking to reliance or tap their equity. Home buyers shouldn't be swayed by mortgage rate gyrations, but base their buying decision on personal needs, goals and financial conditions, experts say.

Whatever decision you make, don't delay.

"This window will be very short, as the Feds will be starting to borrow money again big time as they will be entering deficit spending again," says Romeo Danais, broker/owner of Romic Financial in San Jose, CA.

"There's still plenty of capital on the market right now and rates may drop a little more for two or three weeks or so, but then I think they'll start to go up gradually," says Danais, also a real estate investor in Oklahoma and New England.

For more articles by Broderick Perkins, please press here.

Published: January 17, 2002

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.