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Average Mortgage Interest Rates Fall to 5.88% (30-year fixed) with Average Points of 0.35%

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This week, mortgage rates tumbled to their lowest levels since September 2005. The average 30-year fixed rate fell 26 basis points from the previous week to 5.88 percent. A basis point is one-hundredth of a percentage point.

Meanwhile, the average 15-year fixed — a popular option for refinancing — plunged 31 basis points, to 5.45 percent. The average jumbo 30-year fixed declined 17 basis points to 7.03 percent.

Adjustable rates also sank. The one-year adjustable-rate mortgage fell 7 basis points, to 6.03 percent. The popular 5/1 ARM slid 33 basis points, to 5.81 percent.

This week’s drop marked the second consecutive week of sharply falling mortgage rates. Rates had been rising steadily in recent weeks before suddenly reversing direction and tumbling a total of 43 basis points over the past two weeks.

The sharp drop in mortgage rates likely reflects souring investor sentiment over the future of the U.S. economy. Investors anticipating an economic slowdown or recession are snapping up U.S. Treasury securities, causing yields to fall. The direction of fixed mortgage rates and Treasury bond rates often is closely correlated.

Falling rates offer a rare glimmer of hope to the nation’s housing market, which has been slumping since hitting record highs earlier this decade.

Several factors have contributed to softening demand for real estate, including an oversupply of homes on the market, a spike in foreclosure rates and tightening credit conditions brought on by the subprime mortgage crisis.

The average interest rates above are from’s weekly national survey of large banks and thrifts conducted January 9, 2008, and published on January 10, 2008.

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