Average 30-year mortgage rate drops to 4.22%

Key Points

• Mortgage rates have fallen to their lowest level in three months
• Average 15-year mortgage rate fell to 3.29%25 from 3.37%25
• Mediocre economic news has helped keep rates in check

Mortgage interest rates fell again this week to their lowest level since June, but they have likely leveled off — unless the government shutdown slows the economy’s growth, economists say.

The 30-year fixed rate mortgage averaged 4.22% as of Thursday, down for the third consecutive week. It was 4.57% in the week ended Sept. 12, but a year ago it was 3.36%, according to mortgage giant Freddie Mac.

The average rate on a one-year adjustable-rate mortgage was unchanged at 2.63%.

The average rate on a five-year adjustable mortgage dipped to 3.03% from 3.07%.

The latest drop in rates came amid declining consumer confidence and the onset of the government shutdown, says Frank Nothaft, Freddie Mac chief economist.

Rates are not likely to move “sharply lower” unless the shutdown continues to the point where it takes a measurable toll on government spending, which would weigh on the economy, Nothaft says.

For the five business days ended Wednesday, the average rate for a 30-year fixed-rate loan wavered between 4.34% and 4.39%, show data from mortgage tracker HSH Associates.

“We seem to have leveled off,” says HSH’s Keith Gumbinger.

Assuming the government shutdown doesn’t go longer than a month, mortgage interest rates could even head higher as the economic recovery continues, even at a slow pace, says Greg McBride, of Bankrate.com.

“The shutdown is a headwind to the economy, not a game changer,” he says.

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Mortgage rates pushed up from historic lows in May and bounced higher to mid-August before leveling off. They’ve been trending downward in recent weeks since the Federal Reserve said last month it will not begin tapering its monthly purchases of mortgage-backed securities and Treasuries, which has kept interest rates low.

The drumbeat of mediocre economic news has also worked to keep rates in check, Gumbinger says.

Along with slipping consumer confidence, activity in the U.S. service sector grew in September but the pace was slower than many economists had anticipated. Private-sector employment in September also grew less than expected.

One big wildcard for the entire economy — including interest rates — is the prospect of a government default caused by Congress failing to rise the $16.7 trillion federal debt limit.

A default would be unprecedented and has the potential to be catastrophic, the Treasury Department said in a report Thursday. Credit markets could freeze, the value of the dollar could plummet and U.S. interest rates could “skyrocket,” the report said.

Recently falling rates have yet to make a big impact on mortgage demand.

Applications for home loans dipped slightly in the latest week as a drop in demand from home buyers outweighed an increase in demand from those looking to refinance, the Mortgage Bankers Association said this week.

The longer the shutdown goes, the more disruptive it’ll be for the housing market, MBA CEO David Stevens said Thursday. Lenders face delays given lack of access to government data to verify borrowers’ tax information and Social Security numbers.