How Low can they can go?

Average rates for all but one mortgage product category set new record lows, according to a pair of weekly surveys.

Freddie Mac's (FRE: 0.3951 -4.33%) weekly survey put the average rate for a 30-year fixed-rate mortgage (FRM) at 4.58% with an average 0.7 origination point for the week ending July 1, down from last week's average of 4.69%. A year ago, the average rate was 5.32%.

The Bankrate survey of large banks and thrifts put the average rate for a 30-year FRM at 4.75% with a 0.41 origination point, down from last week's average of 4.81%.

The average rates are both new lows for 30-year FRMs in the two surveys.

“Interest rates on fixed-rate mortgages and the 5-year hybrid ARM fell once again to all-time record lows this week in a period where the economy struggles to gain momentum and inflation remains very low,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Growth estimates for first quarter GDP were revised down by a half percentage point over the past two months to 2.7%, according to the Bureau of Economic Analysis. Annual inflation, as measured by the 12-month change in the core CPI, held at 0.9% in April and May, which is the slowest pace in over 44 years, as reported by the Bureau of Labor Statistics.

Rates on 15-year FRMs were also down. Freddie Mac put the average rate for a 15-year FRM at 4.04% with an average 0.7 point, down from last week's average of 4.13% and a year ago, when the average was 4.77%. Bankrate said 15-year FRMs averaged 4.2% with a 0.41 point, down from 4.26% last week. Both averages are new lows in the survey.

Rates are being driven down by an increased investor appetite for American bonds compared to those of other countries, particularly volatile Europe. But Brian Koss, executive vice president of Mortgage Network, in Danvers, Mass., believes psychological factors may come into play before rates drop any further.

"As you get near the 4.5 (percent) handle, it really acts as the new Rubicon that does not want to be crossed," Koss told Bankrate, adding that it's in the best interest of the largest mortgage servicers not to stimulate another refinancing boom because they likely would lose many of the loans they're currently profitably servicing.

Freddie said the average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) was 3.79% with an average 0.7 point, down from last week's average of 3.84% and a year ago, when it averaged 4.88%. Bankrate put the average rate for a five-year Arm at 4.07% with a 0.41 point, down from last week's average of 4.13%.

The only mortgage product tracked in the surveys that did not set a new low was Freddie's average for one-year Treasury-indexed ARMs, which averaged 3.8% with a 0.7 point, up from last week's average of 3.77%. A year ago, the one-year ARM averaged 4.94%.

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