Interest rates on home loans turned higher this past week, and all indications are that they will continue rising.
Fixed interest rates on 30-year mortgages moved up 5 basis points from seven days ago to 4.47 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended Dec. 19. Thirty-year rates were 110 BPS worse than the same week in 2012.
Thirty-year mortgages averaged 4.526 percent on closed loans for all of last month, falling from 4.750 percent in November, according to Ellie Mae Inc. But the 30 year was up from 3.600 percent in November 2012.
An analysis of this week’s Treasury market activity indicates that 30-year fixed rates could be around 6 BPS worse in Freddie’s next report.
Data from the Department of the Treasury indicate that the yield on the 10-year Treasury note averaged 2.88 percent during the period that Freddie was surveying lenders this week, while the 10-year yield closed at 2.94 percent on Thursday.
The run-up in the 10-year yield reflects the market’s reaction to the Federal Reserve’s announcement that it would scale back its monthly investments in mortgage-backed securities and Treasury bonds by $10 billion as a result of a strengthening economy.
A majority of panelists surveyed by Bankrate.com for the week Dec. 19 to Dec. 25 agreed that rates are likely to rise over the next week. But 29 percent predicted rates won’t move more than 2 BPS, while just 14 percent projected a decline.
In its December 2013 Economic and Housing Market Outlook, Freddie predicted that 30-year mortgages will average 4.3 percent this quarter, 4.4 percent in the first-quarter 2014 and 4.6 percent in the following quarter.
In the National Association of Federal Credit Union’s Economic &Â CUÂ Monitor for December, 30-year mortgages are expected to average 5.0 percent next year.
The spread between conforming and jumbo mortgages was 35 BPS in the U.S. Mortgage Market Index report from LoanSifter and Mortgage Daily for the week ended Dec. 13. A week earlier, the spread was 84 BPS.
Average fixed rates on 15-year mortgages jumped 8 BPS from the week ended Dec. 12 to 3.51 percent in Freddie’s report. Fifteen-year mortgages grew less attractive this week as the difference between 15- and 30-year loans shrunk to 96 BPS from 99 BPS in Freddie’s last report.
The NAFCUÂ predicts 15-year mortgages will average 4.0 percent in 2014.
Fifteen-year mortgages accounted for 14.5 percent of originations in November, according to Ellie Mae. The share was off from 15.5 percent the previous month and 16.7 percent in November 2012.
Freddie reported that the five-year, Treasury-indexed, hybrid, adjustable-rate mortgages averaged 2.96 percent, 2 BPS higher than in the previous survey.
One-year Treasury-indexed ARMs averaged 2.57 percent in Freddie’s report, climbing from 2.51 percent a week earlier and 2.52 percent in the week ended Dec. 20, 2012.
Freddie forecasts that the average one-year ARM will be 2.7 percent in the fourth quarter and in the first three months of next year then rise to 2.8 percent.
The Treasury Department reported that the index for the one-year ARM, the yield on the one-year Treasury note, slipped 1 basis point from a week earlier to close at 0.13 percent Thursday.
The six-month London Interbank Offered Rate was 0.35 percent Wednesday, according to Bankrate.com. LIBOR, which is used as an index on some subprime ARMs, was 0.34 percent the prior Wednesday.
Ellie Mae reported that ARMs accounted for 5.8 percent of originations in November, up from the prior month’s 5.6 percent and 2.0 percent in the same month last year.
ARM share in the latest Mortgage Market Index report jumped to 6.4 percent from the previous week’s 3.9 percent.
ARM share in Freddie’s outlook is expected to be 9 percent this quarter then rise 1 percentage point each quarter through the end of next year.
