Mortgage rates dropped this week, as the latest economic data disappointed investors and the Fed reminded them that the economy is far from recovery.
The benchmark 30-year fixed-rate mortgage fell to 4.23 percent, compared to 4.29 percent the previous week, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.39 discount and origination points. One year ago, the mortgage index was 5.01 percent; four weeks ago, it was 4.10 percent.
The benchmark 15-year fixed-rate mortgage fell to 3.44 percent from 3.48 percent the previous week, and the benchmark 5/1 adjustable-rate mortgage fell to 3.14 percent from 3.24 percent.
Mortgage experts expected rates to shoot up again this week after last week's spike, but recent economic reports pushed rates down.
"It was pleasant surprise," that rates improved in recent days, said Michael Becker, a mortgage banker at WCS Funding in Baltimore.
As the stock market rallied last week, investors pulled their money out of government bonds in search of higher returns. That led to a spike in rates. But the upward trend reversed as Federal Reserve Chairman Ben Bernanke injected a dose of reality into the markets during a televised interview Tuesday. Bernanke said it's far too early "to declare victory" in the U.S. economic recovery.
Consumers seem to share his view. The Consumer Confidence Index dropped 1.4 to 70.2 points in March, as consumers worried about inflation and rising gas prices.
"Despite some positive economic signs, home prices continued to drop," said David M. Blitzer, chairman of the Index Committee at S&P Indices. According to the 20-city Standard & Poor's/Case-Shiller Home Price Index released Tuesday, home prices fell 3.8 percent in January.
The pace of home sales also slowed down a bit in February, according to the National Association of Realtors. The Realtors' index slipped 0.5 percent in February, but remained significantly better than a year ago.
As investors continue to get mixed signals on the local and global economy, mortgage rates will fluctuate, Becker said.
"We might be entering another period of volatility, which is scary because we got so complacent with rates being in a tight range for a while," he said.
The 30-year fixed-rate averaged 4.17 percent in the first quarter of the year, down from an average of 4.26 percent in the fourth quarter of 2011, according to Bankrate's weekly survey.
Barry Habib, chief market strategist for Residential Finance Corp. in Marlboro, N.J., said he expects rates will improve in coming days before they begin to rise again.
"There is going to be a lot of volatility," he said. "The next couple of days could be the best time to lock in. Beyond that, we'll probably get a wave of ups and downs. The summer will be a real turning point for rates."
Borrowers who think they should wait for better rates and homebuyers who want to wait for lower prices, shouldn't take the chance, Habib says.
But many borrowers, including refinancers, seem to have gone on a waiting mode in recent weeks.
The volume of mortgage applications decreased 2.7 percent last week, compared to a week earlier, according to the Mortgage Bankers Association. Refinance applications decreased 4.6 percent. Refinance volume has decreased for six weeks in a row.