Bad economic news drove interest rates on home loans lower, and the latest signs point to similar rates in the next report.
Thirty-year fixed mortgage rates dropped 10 basis points from last week to an average of 4.41 percent in Freddie Mac's Primary Mortgage Market Survey for the week ended Jan. 16.
But despite the latest decline, Freddie said that 30-year mortgages are still averaging 103 BPS more than in the same week last year.
Freddie Mac Chief Economist Frank Nothaft attributed the decline to signs that the economic recovery is weakening. He cited last week's employment report, which indicated that only 74,000 jobs were added during December.
Ellie Mae reported that 30-year rates averaged 4.592 percent on loans closed in December, up from the prior month's 4.526 percent.
Thirty-year rates are likely to be around the same level in next week's report based on Mortgage Daily's Treasury market analysis.
The yield on the 10-year Treasury note, which is a benchmark for fixed rates, averaged 2.87 percent during the period that Freddie surveyed primary lenders this week, according to Treasury Department data. On Thursday, the 10-year yield closed at 2.86 percent.
Bankrate.com reported that 38 percent of the panelists it surveyed for the week Jan. 16 to Jan. 22 predicted interest rates will rise at least 3 BPS over the next week, while another 38 percent forecasted no change. Less than a quarter expected rates to decline.
Freddie predicts that 30-year fixed rates will average 4.6 percent this quarter then rise 20 BPS each of the following two quarters.
In Fannie Mae's latest outlook, 30-year rates are forecasted to average 4.6 percent in the first quarter, 4.7 percent in the second quarter and 4.9 percent in the third quarter.
Thirty-year rates are predicted by the Mortgage Bankers Association to average 4.7 percent in the first quarter then rise to 4.8 percent in the second quarter and 5.0 percent in the third quarter.
The difference between jumbo rates and conforming rates was 22 BPS in the U.S. Mortgage Market Index from LoanSifter and Mortgage Daily for the week ended Jan. 10. The jumbo-conforming spread thinned from 28 BPS in the previous report.
Freddie reported that 15-year fixed rates averaged 3.45 percent, 11 BPS better than in the week ended Jan. 9. Fifteen-year loans were more attractive this week, with the spread between 30- and 15-year rates widening to 96 BPS from the previous week's 95 BPS.
Five-year, Treasury-indexed, hybrid, adjustable-rate mortgages averaged 3.10 percent in Freddie's latest survey, 5 BPS lower than in the last report.
Fannie expects that five-year ARMs will average 3.2 percent this quarter then rise 20 BPS each of the following three quarters.
No change over the past week left one-year Treasury-indexed ARMs averaging 2.56 percent this week, according to Freddie. The average one year was 2.57 percent in the week ended Jan. 17, 2013.
Freddie expects one-year ARMs to average 2.6 percent in the first half of this year and 2.7 percent in the second half.
At rival Fannie, the one-year ARM is projected to average 2.6 percent in the first quarter, 2.8 percent in the second quarter and 2.9 percent in the third quarter.
One year ARMs adjust with the yield on the one-year Treasury note, which the Treasury Department reported fell to 0.11 percent Thursday from 0.13 percent a week earlier.
Another index used for some ARMs, the six-month London Interbank Offered Rate, was 0.34 percent Wednesday, the same as the prior week.
ARM share on closed loans was 6.6 percent in December, up from 5.8 percent in November, according to Ellie.
The most recent Mortgage Market Index report indicated that ARM share was 12.8 percent, up from 11.1 percent seven days earlier.
Freddie has ARM share at 10 percent in the first quarter then rising one percentage point each of the following five quarters.
First-quarter ARM share is expected to be 10 percent at Fannie. Then ARM share is expected to rise to 12 percent three months later and 13 percent in the third quarter.