Mortgage interest rates fell last week in response to slower-than-anticipated economic growth, reversing the preceding week's surge.
"I think the markets calmed down a little after Alan L. Greenspan's comments, and everything's back in perspective," said David Lereah, chief economist for the Mortgage Bankers Association of America.
Last week, rates on 30-year fixed rate mortgages fell 6 basis points to 7.25%, erasing slightly more than half of the gain recorded the week before, according to HSH Associates, Butler, N.J.
Information Leaks Cited
The rate decline was expected, and most industry experts said they believed continued slow growth would keep levels low for the forseeable future.
Mr. Lereah said a series of information leaks from the Federal Reserve Board indicated to him that Fed chairman Greenspan was retreating from his threats to raise short-term interest rates and that markets had responded with a rally, driving rates down.
Meanwhile, the MBA refinance index continued to climb. The index reached 1,312 for the week ending July 30, up from 1,304 the preceding week.
An index value of 100 corresponds with the level of March 1990. The value is calculated as a moving three-week average.
Charles Shaffer, president of Mark Twain Mortgage of St. Louis, said the last week had produced yet another rise in refinancings.
"We never expected rates to go this low, and we never expected it to last this long," he said of the refinancing boom.
Over the past 18 months, many borrowers have taken advantage of the low rates to move from 30-year mortgages to 15-year mortgages.
With rates so low, homeowners can pay off the mortgage in half the time while barely increasing monthly payments.
According to a survey by the Federal Home Loan Mortgage Corp., 33% of homeowners who refinanced their 30-year loans chose 15-year loans to replace them.
Fully 83% of homeowners refinancing 15-year mortgages chose to stay with the shorter term mortgages, the highest repeat rate since 1987.