Mortgage Rates Break New Barrier

Interest rates for 30-year fixed-rate mortgages smash previous record, hitting a new all-time low.

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Mortgage rates are dropping again, this time to even lower lows.

Average rates for 30-year fixed-rate mortgages sunk to a record 3.62 percent for the week ending July 5, according to Freddie Mac's Primary Mortgage Market Survey released Thursday. One year ago, 30-year fixed-rate loans had a 4.6 percent interest rate.

Economists blamed weak consumer spending and a pullback in manufacturing for the continued downward trend in mortgage rates, which have matched or fallen to record lows in 10 of the last 11 weekly surveys.

[Read: Asking Prices Find Foothold, Rents Continue to Climb.]

"Recent economic data releases of less consumer spending and a contraction in the manufacturing industry drove long-term Treasury bond yields lower over the week and allowed fixed mortgage rates to hit new all-time record lows," Frank Nothaft, vice president and chief economists at Freddie Mac, said in a release.

Mortgage rates tend to follow the direction of Treasury yields, so when yields fall on Treasuries, interest rates for home loans drop, too. Treasury yields have been falling as more investors have piled into government bonds on concerns about slowing global economic growth, especially from Europe and China.

Do mortgage rates have any further to fall? Despite Thursday's encouraging ADP employment report, which showed a significant uptick in hiring, there are few other signs of a strengthening economy, economists say.

That means even lower rates might be on the horizon.

Meg Handley is a business reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter.