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Welcome to the start of another refinancing boom. Mortgage rates plummeted about a fifth of a percentage point after the release of a disappointing jobs report for February.
As a result, rates dropped to their lowest point since last summer, when they were plumbing 46-year lows.
The benchmark 30-year fixed-rate mortgage fell 20 basis points to 5.44 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.34 discount and origination points. One year ago, the mortgage index was 5.70 percent.
The last time the 30-year benchmark rate was lower was June 25, when it was 5.31 percent. The 30-year bottomed out at 5.28 percent in Bankrate's June 11 survey, the lowest rate since FHA loans averaged 5.25 percent in January 1957.
The 15-year fixed-rate mortgage fell 19 basis points to 4.76 percent. The one-year adjustable-rate mortgage fell 15 basis points to 3.43 percent.
The rate plunge began early on the morning of March 5, when the employment report for February was released. The consensus among economists was that the report would show that nonfarm payrolls had risen by 125,000 in February. Instead, it reported that just 21,000 net jobs were created in February, and that they were all state and local government jobs (20,000 teachers and 1,000 others). There was no net job creation in the private sector, according to the report.
Job whammy
This created a double whammy. The first slap across Wall Street's face came in the form of the payroll number that was far below expectations. The second slap was that the small increase was entirely driven by government payrolls, with no net improvement from private employers, where economic strength needs to come from. Within minutes of the employment report's release, the yield on the 10-year U.S. Treasury had dropped 20 basis points. Mortgage rates followed.
"Certainly, Friday morning's employment report was a trigger," says Doug Perry, senior vice president for Countrywide Home Loans. He adds that you have to look at it in context. Two months ago, the employment report for December was even worse -- initially, it said the economy added 1,000 net jobs that month, although that has been revised to 8,000. Rates crashed when that report came out and didn't recover.
"After a couple of weeks there was talk that it was an anomaly; let's wait for the next one," Perry says. The January report, issued the first week of February, was a big improvement over December, but still a disappointment. Then came this most recent report for February. "People say, 'Hey, wait a minute. Maybe this recovery isn't on track,'" Perry says. "My expectation of perhaps rates steadily going up and the Fed raising rates this summer -- let's toss that out the window."
The conventional wisdom had been that the Fed would raise short-term rates this summer or fall. Not everyone bought into the conventional wisdom; economists for the National Association of Home Builders thought the Fed would wait until the end of the year, after the election. "We're even more confident that that's true now," NAHB economist Michael Carliner says.
The Martha Stewart factor
Even before this drop in rates, experts had been saying that at least 40 percent of homeowners could benefit by refinancing. That percentage is no doubt higher now. But bankers are still waiting for the refi rush. So far it hasn't happened. The Mortgage Bankers Association's refinancing index rose just 1 percent in the last week.
Bankers can blame Martha Stewart's jury, and the media circus surrounding Friday's verdict, for the nonappearance of a refi boomlet. Stewart's conviction hijacked the media attention that was being paid, earlier in the day, to the drop in rates. A reporter for the Fox News Channel called me Friday to ask about mortgage rates. I called back just after he got word that the jury had reached a verdict. "Sorry," he said sheepishly, "but this mortgage rate story isn't going to run." He got me off the line as quickly as he could while being gracious.
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"I don't think the average consumer understands how quickly rates have headed downward," Perry says. He notes that refi demand was huge the last time rates were this low. And he has no doubt that many, many homeowners missed those rock-bottom rates and would save money by refinancing now.
Last summer's refi party got its last call June 25, when the Fed cut short-term interest rates less than the experts had expected, counterintuitively sending long-term mortgage rates abruptly higher. The end of this refi opportunity could come equally abruptly. A sudden rise in inflation, or an unexpected improvement in the jobs report could do it, says Jay Brinkmann, economist for the Mortgage Bankers Association.
Weak job creation "is really one of the only signs of difficulty in the economy," Brinkmann says. "Gross domestic product is growing, (and) other investment across the board, so a good jobs report could turn this thing around quickly." He adds that Japan's and China's appetite for U.S. Treasuries is a factor, too: Those countries are buying billions of dollars in Treasuries to prop up the dollar and hold down prices of goods they export to the United States. If they stop buying Treasuries, interest rates could rise. | 
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