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U.S. Mortgage Rates Drop With 30-Year at Three-Month Low

Oct. 3 (Bloomberg) -- Mortgage rates for 30-year U.S. loans fell to a three-month low after a partial government shutdown pushed down yields for the Treasuries that guide consumer debt.

The average rate for a 30-year fixed mortgage dropped to 4.22 percent, the lowest since June 20, from 4.32 percent, Freddie Mac said in a statement today. The average 15-year rate decreased to 3.29 percent from 3.37 percent, according to the McLean, Virginia-based company.

While the shutdown may have a “minimal” impact on mortgage rates immediately, a potential U.S. debt default and market expectations for when the Federal Reserve may begin tapering the pace of its monthly bond purchases will be more consequential, said Jed Kolko, chief economist for Trulia Inc., a San Francisco-based real estate website.

“One effect of the shutdown is, if it lasts, it would reduce purchases among consumers because federal wages aren’t being paid,” slowing economic activity and pushing rates lower, Kolko said in an interview yesterday. The debate over raising the country’s debt limit “is a different story. In the unlikely case that the government defaults on its debt, it would probably cause financial panic and cause interest rates to spike.”

Treasuries gained after the U.S. government began its shutdown on Oct. 1 as investors sought refuge from uncertainty. Ten-year yields decreased to almost a seven-week low yesterday, the biggest slide in two weeks.

Debate over the shutdown may bleed into discussions about raising the debt ceiling, a bigger concern for the U.S. economy. Treasury Secretary Jacob J. Lew said this week that the U.S. has begun using the last measures available to avoid breaching the limit on Oct. 17.

May Low

The average rate for a 30-year loan surged to a two-year high of 4.58 percent in August from a near-record low of 3.35 percent in early May. Mortgage applications for home purchases fell 5.6 percent in the week ended Sept. 27, the most in almost two months, the Mortgage Bankers Association said yesterday.

After Congress failed to pass a budget, borrowers in the process of getting loans could be delayed as lenders are blocked from verifying Social Security numbers and accessing Internal Revenue Service tax transcripts. The process also may be longer for borrowers seeking mortgages backed by the Federal Housing Administration because its full-time staff is now less than a tenth of its normal size and the U.S. Department of Agriculture, which backs mortgages in rural areas, won’t take on new business during the shutdown.

To contact the reporter on this story: Elizabeth Dexheimer in New York at edexheimer@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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