Aug. 29, 2008 – Rates on 30-year mortgages fell for the second straight week, declining to the lowest level in more than a month.

Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages dropped to 6.40 percent this week, down from 6.47 percent last week. The new rate was the lowest since the week of July 17 when 30-year mortgages stood at 6.26 percent.

The 30-year mortgage has been above 6 percent since late May, reflecting the view of financial markets that rising inflation pressures will keep the Federal Reserve from cutting interest rates further even though the economy is still mired in a period of significant weakness.

The housing market continues to struggle to emerge from its worst slump in decades. Reports this week showed that sales of existing homes, the largest part of the market, and new homes managed to post small increases in July although activity still remains far below the level of last summer.

Frank Nothaft, chief economist at Freddie Mac, said one hopeful sign was that the pace of home price declines has slowed in recent months.

“There are also signs more buyers may be getting ready to return to the market,” he said, noting that the Conference Board’s latest survey showed that the number of households planning to buy a home within six months has now risen to its highest level since March.

Still, many economists cautioned that until the backlog of unsold homes is reduced much more significantly, the housing slump is likely to persist. The problem is being made worse by surging mortgage foreclosures dumping even more homes on an already glutted market.

The Freddie Mac survey showed that other mortgage rates were mixed this week.

Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing, fell to 5.93 percent, down from 6 percent last week.

Rates on five-year, adjustable-rate mortgages averaged 6.03 percent this week, up slightly from 5.99 percent last week.

Rates on one-year, adjustable-rate mortgages also edged up slightly to 5.33 percent, from 5.29 percent last week.

The mortgage rates do not include add-on fees known as points. The nationwide fee for 30-year mortgages, 15-year mortgages and five-year mortgages averaged 0.6 point. One-year mortgages carried an average fee of 0.7 point.

A year ago, rates on 30-year mortgages stood at 6.67 percent, 15-year mortgage rates averaged 6.12 percent, five-year adjustable-rate mortgages were at 6.35 percent, and one-year adjustable-rate mortgages stood at 5.84 percent.

Source:  Freddie Mac/Associated Press