Fixed mortgage rates fell to their lowest level in more than four months thanks to renewed optimism about the Federal Reserve’s quantitative easing strategy. Still, rates are expected to maintain a slow, steady rise over the next year.
A 15-basis-point improvement from last week left 30-year fixed mortgage rates averaging 4.13 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended Oct. 24.
The last time Freddie reported that the 30 year was this low was the week ended June 20, when it averaged 3.93 percent.
“Mortgage rates slid this week as the partial government shutdown led to market speculation that the Federal Reserve will not alter its bond purchases this year,” Freddie Mac Chief Economist Frank Nothaft explained in the report. “The weak employment report for September added to this expectation.”
A year ago, 30-year mortgage rates averaged 3.41 percent.
Mortgage Daily’s analysis of Treasury market activity suggests that 30-year rates won’t change much by the time Freddie’s next report is released.
The 10-year Treasury yield averaged 2.56 percent during the days that Freddie surveyed primary lenders for this week’s survey, while the 10-year yielded 2.53 percent today, according to market data reported by the Department of the Treasury.
More than three-quarters of the panelists surveyed by Bankrate.com for the week Oct. 24 to Oct. 30 were more optimistic, predicting that mortgage rates will fall at least 3 BPS over the next week or so. Fifteen percent projected no changes, and 8 percent forecasted an increase.
Freddie predicts that 30-year mortgages will average 4.3 percent this quarter, then rise to 4.4 percent in the first quarter of next year. By the final quarter of next year, the McLean, Va.-based company expects 30-year rates to average 5.1 percent.
Freddie’s secondary rival, Fannie Mae, forecasts that 30-year rates will go from 4.4 percent this quarter to 4.6 percent in the first-quarter 2014 and continue to rise through the end of next year, when they reach 5.0 percent.
In the U.S. Mortgage Market Index report from Mortgage Daily and LoanSifter for the week ended Oct. 18, jumbo mortgages were priced at a 32-basis-point premium to conforming loans, slightly worse than the 31-basis-point jumbo-conforming spread seven days prior.
At 3.24 percent in Freddie’s survey, 15-year fixed rates were 9 BPS better than the week ended Oct. 17. Compared to 30-year fixed rates, 15-year rates were 89 BPSÂ lower, losing some of their edge over longer-term rates from last week when the spread was 95 BPS.
Freddie reported that five-year, Treasury-indexed, hybrid, adjustable-rate mortgages averaged 3.00 percent in the latest survey, down from 3.07 percent seven days earlier.
Fannie projects that hybrid ARMs will average 3.2 percent in the fourth quarter, 3.4 percent the following quarter and continue to rise to 4.0 percent by the end of next year.
The one-year Treasury-indexed ARM averaged 2.60 percent in Freddie’s latest survey, 3 BPS lower than last week and 1 basis point more than in the week ended Oct. 25, 2012.
Freddie has one-year ARMs averaging 2.7 percent in the fourth-quarter 2013 and the first-quarter 2014.
The outlook from Fannie is for one-year ARMs to average 2.7 percent in the fourth quarter then rise to 2.8 percent three months later. A continued increase expected by Fannie has the one-year ending 2014 at 3.3 percent.
One-year ARMs adjust based on movement in the one-year Treasury yield, which slipped to 0.12 percent Thursday from 0.13 percent seven days earlier based on Treasury Department data.
The six-month London Interbank Offered Rate, which also serves as an ARM index, didn’t move over the last week — averaging 0.36 percent as of Wednesday, according to Bankrate.com.
ARM share in the latest Mortgage Market Index report inched up to 10.5 percent from the previous week’s 10.3 percent.
Freddie predicts that ARM share will be 11 percent this quarter and rise 1 percentage point each quarter through the end of 2014.
Fannie expects ARM share to be just 8 percent this quarter and increase 1 percentage point each of the next three quarters.
