Average 15-year fixed mortgage rate down to 5.86%

Freddie Mac's Weekly Primary Mortgage Market Survey shows that the average 15-year fixed mortgage rate is down to 5.86% (from 5.92% last week). Despite all the chatter about subprime "carnage", relatively cheap mortgages continue to be available to consumers with semi-decent credit. According to Freddie Mac:

"Mortgage rates slid further in the past week to the lowest level this year, as volatility in overseas stock markets led to questions about implications for the US economy," said Frank Nothaft, Freddie Mac vice president and chief economist. "Uncertainties about the strength of the economy dominated the effects of other indicators, such as January's personal income growth and core inflation rate measured through the personal consumption report. Both increased at rates faster than had been expected, and potentially would have put upward pressure on interest rates. But the flight to quality due to the stock market's fall pushed bond yields down instead.

In other words, even with the subprime "carnage", the bulk the MBS mortgage bonds are still considered "quality", even at times of financial anxiety.

I suspect that "investors" will continue to "flock" to decent-quality MBS bonds to get a higher yield than treasuries. The good news is that Wall Street has already separated MBS bonds into "tranches" that clearly distinguish the differences in quality of the bonds. The subprime MBS bonds can get "hammered" without too much spillover to the higher-quality MBS bonds. At some price, even "hammered" subprime MBS bonds have an attractive yield.

We are not going to see a true "housing recession" as long as consumers with semi-decent credit can get mortgages with rates down at the 6% range. We did in fact have a speculative "bubble" with some of the subprime stuff, but since we're almost to the point of being fully clear the "bubble" we should see the housing sector back on a normal growth track within a few months. We're not quite there, but the next few months of elapsed time should probably do the trick.

-- Jack Krupansky