Interest Rates Feel Effects of Government Shutdown

Though the early days of the shutdown in Washington ""haven't made a major impact"":https://themreport.com/articles/agencies-analysts-react-to-government-shutdown-2013-10-01 on the economy yet, concerns about what might come next drove mortgage rates down for another week.

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""Freddie Mac's"":http://www.freddiemac.com/ Primary Mortgage Market Survey showed average fixed rates dropping for the third straight week, with the 30-year fixed-rate mortgage (FRM) averaging 4.22 percent (0.7 point) for the week ending October 3, down a tenth of a percentage point. A year ago, the 30-year FRM averaged 3.36 percent, only a few basis points above its all-time low.

The 15-year FRM this week averaged 3.29 percent (0.7 point), down from 3.37 percent previously.

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Average adjustable rates weren't affected as much. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.03 percent (0.6 point) this week--down from 3.07 percent--while the 1-year ARM was flat at 2.63 percent (0.4 point).

In addition to the government shutdown (which threatens to shave points off of GDP growth in Q4 if allowed to continue much longer), rates were brought down by a slip in consumer sentiment in September, according to Frank Nothaft, VP and chief economist for Freddie Mac.

It was the fourth week of declines for ""Bankrate.com's"":http://www.bankrate.com/ weekly national survey, which saw the 30-year fixed averaging 4.41 percent and the 15-year fixed falling to 3.47 percent. Bankrate's measure for the 5/1 ARM was down just slightly to 3.40 percent.

While the current turmoil on Capitol Hill has captivated the nation, Bankrate says the real threat is the approaching deadline to increase the debt ceiling.

""While the usual silly games from Washington are expected, the downside risk is huge. Should a full debt default--where the U.S. fails to make interest payments on our outstanding debt--occur, it would be an unmitigated disaster and financial markets,"" the company said.

There is still hope, however--because a default would prove so catastrophic to economic growth, Bankrate says ""odds are highly in favor of a last minute deal.""