WASHINGTON – Mortgage rates are falling as this week's dramatic action by the Federal Reserve provides a boost to the dismal housing market, but the nation's unemployment rolls are stuck at historically high levels amid a deepening recession.
Mortgage giant Freddie Mac on Thursday reported that rates had fallen to the lowest level on records dating back to 1971. Average rates on 30-year fixed-rate mortgages dropped to 5.19 percent, down from the year's previous low of 5.47 percent, set last week.
Jobs data from the government, while better than expected, was still sobering. The Labor Department on Thursday said its tally of initial jobless benefit claims fell to a seasonally adjusted 554,000 from an upwardly revised figure of 575,000 the previous week. The new tally was slightly below economists' expectations of 558,000 claims.
Another slight improvement was seen in the number of people who continue to receive jobless benefits, which declined to 4.38 million from 4.43 million the previous week. Economists expected a slight increase to 4.45 million.
Still, claims remain near the highest level since 1982, though the labor force has grown by about half since then.
And the cuts continue. Water treatment and storage systems maker Pentair Inc. said Thursday that it will cut more than 10 percent of its work force, or about 1,600 jobs, due to a faster-than-expected drop-off in demand and consumer spending. One day earlier, hard drive maker Western Digital Corp., managed-care company Aetna Inc., and Newell Rubbermaid Inc., maker of products including Rubbermaid storage containers and Sharpie pens, announced mass job cuts.
Meanwhile, President-elect Barack Obama is laying the groundwork for a giant economic stimulus package, worth possibly $850 billion over two years, which Democratic congressional leaders say could be passed within two weeks of Obama taking office.
The Federal Reserve, aiming to free up lending and jolt the economy back to life, on Tuesday cut the federal funds rate from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.
On Wednesday, some mortgage brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments.
"This is beautiful, oh my gosh!" said Patti Mazzara, a mortgage broker in the Minneapolis suburb of Edina, who was surprised when she looked up rates and found them well below 5 percent, down at least three-quarters of a percentage point from earlier in the week. "This is a whole new game now. Hopefully it's going to give people some relief."
The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates — the lowest since the 1960s and down from 5.3 percent Tuesday.
It was the best news in months for anyone looking to lock in a 30-year, fixed-rate mortgage. But it was not expected to be a cure-all, and borrowers already in danger of foreclosure probably won't be able to take advantage.
"It's a call to action for homeowners looking to get out of adjustable-rate mortgages," said Greg McBride, senior financial analyst at Bankrate.com. "Unfortunately, it's not an equal-opportunity party."
Falling interest rates mean Americans could suddenly find billions of extra dollars in their pockets at a time when consumers have sharply cut back on spending amid rising unemployment and declining household wealth. But many experts believe that the interest rate cuts alone won't be enough to jump-start the economy.
"It's a tall order to get (people) to go out and spend again," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "That's why you also need a stimulus."
The New York-based Conference Board's index of leading economic indicators for November fell 0.4 percent, which was slightly better than the 0.5 percent decline economists expected. The index, which posted a 0.9 percent decline in October, is designed to forecast economic activity in the next three to six months based on 10 economic components, including stock prices, building permits and initial claims for unemployment benefits.
Also Thursday, President-elect Barack Obama named a veteran of the Securities and Exchange Commission to lead the agency as it faces growing criticism for its failure to protect investors and detect trouble on Wall Street.
Mary Schapiro, who currently heads a nongovernment regulatory group for securities firms, is also a former head of the Commodity Futures Trading Commission and former member of the SEC. She has been appointed to government posts by two Republican presidents and one Democratic chief executive.
Wall Street stocks were mixed Thursday morning, after finishing moderately lower Wednesday. The Dow Jones industrial average lost about 20 points in midday trading.