Last week mortgage rates for San Jose homes eased back to the lowest level of the year. According to Freddie Mac’s Primary Mortgage Market Survey 30-year fixed-rate mortgage (FRM) averaged 4.84 percent with an average 0.7 point for the week ending May 20, 2010, down from last week when it averaged 4.93 percent.

The 5-year adjustable-rate mortgage (ARM) for San Jose home loans averaged 3.91 percent this week, with an average 0.6 point, down from last week when it averaged 3.95 percent. This breaks last week’s record and, again, the 5-year ARM has not been lower since Freddie Mac started tracking the 5-year ARM in January of 2005.

So what’s keeping the mortgage rates so low?

After Fed stopped buying mortgage backed securities in March 2010, economists and market experts had predicted the San Jose mortgage interest rates to rise. That did happen for a short while. But recently, the rates have taken a big dive and have broken all kinds of records. The biggest reason being attributed to this is the debt crisis in Europe.

Last week San Jose mortgage interest rates fell again on a 426 point decline in the Dow Jones Index. Weekly jobless claims unexpectedly jumped 25K last week to a two month high of 471K new unemployment claims. What was the strong belief the economic recovery was solid has now been redefined as a potential double dip with the economy slipping on Europe’s debt problems headlined by Greece. For two months after a strong run up in the equity markets most were expecting a correction in the stock market but didn’t believe it would be this bad. Money running headlong to the safety of US treasuries and has allowed mortgage rates to fall to some of the lowest levels since the 2008 sub-prime crash.

Outlook for the week:

Normally Treasury auctions add pressure to the bond market but the conditions these days are more about safety than concerns over demand. That said, with interest rates so low now it will bring the question that may be mortgage backed securities are at “overbought” levels and that investors may start selling it to book some profit. That of course will result in higher mortgage rates. That argument however, may not hold as the investment world is all about safety these days as the uncertainty over economic expansion is increasing rapidly.

Keep watching this space for news on San Jose mortgage rates or follow me on Twitter for live updates on mortgage bonds and market.