Mortgage Rates Fall From 4-Month High With 30-Year at 4.2%

Mortgage rates dropped from a four-month high, reducing borrowing costs as demand for housing improves.

The average rate for a 30-year fixed mortgage was 4.2% this week, Freddie Mac said in a statement today. That's down from 4.23%, the highest since early May. The average 15-year rate slipped to 3.36% from 3.37%, the McLean, Va.-based mortgage-finance company said.

The housing market is recovering as foreclosures subside and employment growth fuels demand. Sales of new homes surged in August, jumping 18% to a 504,000 annualized pace, the highest level since May 2008, Commerce Department figures showed yesterday.

The increase "suggests that looser credit conditions and strengthening economic activity are finally giving households the confidence to purchase a new home," Paul Diggle, property economist for Capital Economics Ltd. in London, wrote yesterday in a note to clients.

Mortgage rates, which had been little changed for two months, jumped last week amid signs that the economy is strengthening. Federal Reserve policy makers on Sept. 17 reiterated a commitment to keep benchmark interest rates near zero for a "considerable time."