U.S. mortgage rates for 30-year loans
plunged to the lowest level in more than eight months as the
nation’s economic recovery showed signs of faltering.

The average rate for a 30-year fixed loan dropped to 4.39
percent in the week ended today from 4.55 percent, according to
Freddie Mac. The average 15-year fixed-loan rate decreased to a
record 3.54 percent from 3.66 percent, the McLean, Virginia-
based mortgage-finance company said in a statement.

The decline followed a slide in yields for 10-year Treasury
notes, which touched the lowest level since November yesterday
as concern grew that the U.S. economy is slowing. Gross domestic
product grew at a 1.3 percent annual rate in the second quarter,
less than economists forecast, the Commerce Department said July
29. Reports this week showed an unexpected drop in consumer
spending and slower-than-estimated growth in manufacturing.

“Two of the most important factors that influence mortgage
rates are economic growth and inflation,” said Keith Gumbinger,
vice president of HSH Associates, a loan-data firm in Pompton
Plains, New Jersey. “The numbers show an economy that is
stumbling far worse than expected. We’re pretty close to stall
speed.”

The rate for a 30-year fixed mortgage is the lowest since
the week ended Nov. 18, when it also was 4.39 percent. It fell
earlier in November to 4.17 percent, the lowest in Freddie Mac
records dating to 1971.

The low borrowing costs have done little to boost home
sales as banks tighten lending standards, the unemployment rate
sticks above 9 percent and a glut of foreclosed properties drag
down prices. Sales of previously owned homes declined in June to
a seven-month low, the National Association of Realtors said
last month. Home values in 20 U.S. cities dropped 4.5 percent in
the year ended in May, according to the S&P/Case-Shiller index.

About 22.7 percent of homeowners with mortgages were
underwater in the first quarter, meaning they owe than their
properties are worth, according to CoreLogic Inc.

“The legacy of the housing crash and the poor economic
backdrop are clearly limiting housing demand,” Paul Dales,
senior U.S. economist at Toronto-based Capital Economics, wrote
in a report to clients yesterday. “It has become even clearer
that the housing market will remain weak for many years.”

U.S. mortgage applications rose 7.1 percent last week, led
by refinancing, according to the Mortgage Bankers Association in
Washington. The group’s refinancing index climbed 7.8 percent in
the period ended July 22 from the prior week.

“Refinancing activity brings folks into the market,”
Gumbinger said. “That said, with an estimated 25 percent of
people underwater, and 9.2 percent unemployment, a large portion
of the country just can’t qualify.”

To contact the reporter on this story:
Ashwin Seshagiri in New York at
aseshagiri@bloomberg.net

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