Rates on 30-year mortgages drop to 6.35 percent

Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.35 percent this week. That was down from 6.45 percent last week, which had been the highest level since last September. The decline pushed the rate to its lowest level in three weeks but it remained above 6 percent, where it has been since the week of May 29.

Frank Nothaft, chief economist at Freddie Mac, said financial markets were relieved with the statement from the Federal Reserve last week that eased concerns about imminent rate hikes.

At its regular meeting to set interest rates on June 24-25, the central bank brought to an end an aggressive rate-cutting campaign and said that the risks of inflation had increased. However, nothing in the Fed's policy statement hinted that the central bank would start raising rates soon.

Many private economists believe the Fed will leave the key short-term rates it controls unchanged for the rest of this year, not wanting to boost rates while the economy remains so weak.

Nothaft noted that the federal funds futures market, where investors make bets on when the Fed will make rate changes, still is showing rate increases starting later this year, although these expectations declined a bit following the Fed's statement from last week.

Other types of mortgages showed decreases this week as well, according to the Freddie Mac survey.

Rates on 15-year fixed-rate mortgages dropped to 5.92 percent, down from 6.04 percent last week.

The five-year adjustable-rate mortgage fell to 5.78 percent, down from 5.99 percent last week. The rate on a one-year adjustable-rate mortgage declined to 5.17 percent, compared to 5.27 percent last week.

The housing market is facing numerous headwinds at present. Slumping prices are keeping potential buyers on the fence while rising mortgage defaults are dumping more homes on an already glutted market.