Rates inch downward this week

After several weeks of off-the-charts volatility, mortgage rates moved modestly lower this week.

The benchmark 30-year fixed-rate mortgage fell 5 basis points, to 6.39 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 0.39 discount and origination points. One year ago, the mortgage index was 6.32 percent; four weeks ago, it was 6.74 percent.

The benchmark 15-year fixed-rate mortgage slid 13 basis points, to 6.08 percent. The benchmark 5/1 adjustable-rate mortgage declined 4 basis points, to 6.42 percent.

Prior to this week, mortgage rates were stuck on a roller coaster. From Oct. 1 to Nov. 5, mortgage rates moved at least 20 basis points each week, falling sharply one week before rising dramatically the next.

Hoping for change

As President-elect Barack Obama prepares to take up residence in the Oval Office, hope is growing that the new administration will help buoy the nation's sinking economy. Seventy-two percent of Americans are somewhat or very confident that Obama "will be successful in bringing about the changes needed to improve the economy," according to an Associated Press-GfK poll released Nov. 11.

Some with especially sunny outlooks may even envision a return to the glory days of rising home values and falling mortgage rates. However, it would be a mistake to expect Obama to single-handedly return the housing market -- and the wider economy -- to prosperity, according to Dick Lepre, senior loan officer at Residential Pacific Mortgage in San Francisco.

"I think that it is better to first back a step up and recognize that the president has relatively little to do with the economy," Lepre says. "The economy is controlled by a coming together of business, labor and capital."

Mortgage rates also are unlikely to improve simply because there is a new occupant at 1600 Pennsylvania Ave., or because of actions undertaken by the Federal Reserve, Lepre says.

Barry Habib, chief executive officer at Holmdel, N.J.-based Mortgage Market Guide, agrees that it's unrealistic to expect Obama to perform economic miracles. "It doesn't matter who it is -- I don't care if it's Houdini," he says. "One guy is not going to fix the economy."

Recent data underscores that there are "some serious, serious, serious problems with our economy," Habib says. It will take time and coordinated effort to work through such difficulties, he says.

"It's not an easy task that just one person can suddenly do," he says. "It's not like there's a magic bullet."

A brighter future?

However, a slowing economy may actually help keep mortgage rates lower for a while, Habib says.

"Historically speaking, mortgage rates will do the opposite of the economy," he says. "In other words, they'll improve as the economy weakens because a stronger economy means inflation."

Dan Green, a loan officer at Mobium Mortgage in Cincinnati, agrees that mortgage rates may drop, at least in the short run. He says renewed confidence in the government's determination to address the nation's economic woes could push rates down.

Such resolve on the part of the new administration and Congress could help ease mortgage rates, Green says. "The (economic) worst case probably won't happen, and now mortgage markets are adjusting for that," Green says. "Markets are forward-looking, and the future looks brighter."

However, today's sunshine eventually could give way to storm clouds if the massive stimulus injected into the economy leads to runaway inflation down the road, Green says. "Long-term, inflation could be a monster," Green says. "That would be terrible for mortgage rates."