Mortgage rates hover in tight range after runup

Fixed mortgage rates rose slightly this week, despite discouraging words from the chairman of the Federal Reserve, who told Congress that the housing sector will get worse before it gets better.

The benchmark 30-year fixed-rate mortgage rose 4 basis points, to 6.82 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 0.23 discount and origination points. A year ago, the mortgage index was 6.89 percent; four weeks ago, it was 6.76 percent.

The benchmark 15-year fixed-rate mortgage rose 4 basis points to 6.5 percent. The benchmark 5/1 adjustable-rate mortgage rose 2 basis points to 6.56 percent.

'Ongoing adjustment'

Mortgage rates shot upward from mid-May to mid-June, but have settled down in the last month, a few basis points on either side of 6.75 percent. Rates headed up this week even after Ben Bernanke, chairman of the Fed, delivered the second of his twice-a-year economic soliloquies to the House of Representatives. He said the economy is expanding and that growth probably will accelerate next year. Then he brought up what he called "the ongoing adjustment in the housing sector."

"Over the past year, home sales and construction have slowed substantially and house prices have decelerated," the Fed chief said. It looked like the housing sector was getting better in the second half of 2006, but sales declined again, he said. Now, more than 4 million houses are on the market, and housing starts in June were down 19 percent from June 2006.

"The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards and the recent increase in mortgage interest rates," Bernanke said. "Sales should ultimately be supported by growth in income and employment as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms."

He added that "declines in residential construction will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time."

History lessons

What about Bernanke's assertion that mortgage rates "remain fairly low relative to historical norms"? It depends on how far back you look.

Bankrate has been tracking the 30-year fixed since September 1985. In those nearly 22 years, the 30-year fixed has averaged 7.99 percent. Today's rates are well under that.

From September 1985 to the end of 1989, the 30-year fixed averaged 10.45 percent. In the early '80s, people were getting 30-year, fixed-rate mortgages at close to 20 percent.

In the '90s, the 30-year averaged 8.03 percent, and so far in the 2000s, it has averaged 6.53 percent. In the last four years, it has averaged 6.13 percent.

So if you compare today's rates with those charged in the '80s and '90s, we're getting good deals. But if you compare today's rates with what's been available over the past four to seven years, there's little to cheer about. Few people today have the opportunity to refinance their fixed-rate mortgages to a lower rate because their home loans date back just a few years, not to the '80s or '90s.

Curtail unfair practices?

Bernanke addressed this year's subprime meltdown, which has seen dozens of lenders go out of business and caused credit standards to be tightened so that fewer consumers with flawed credit can get mortgages. He said that his and other agencies are encouraging loan servicers to modify mortgages to prevent unnecessary foreclosures.

Finally, he said the Fed might use its regulatory power to curtail "specific practices that are unfair or deceptive," including prepayment penalties and stated-income and low-documentation loans.