Refinance activity climbed to a seven month high as rates continued hovering at seven month lows. However, Alan Greenspan said U.S. interest rates are too low for long-term economic stability, indicating a rise is at hand.
The Refinance Index increased 5.1% from the previous week to 3532.2 -- the highest level its been at since the week ending Aug. 8, 2003 -- the Mortgage Bankers Association of America (MBA) reported. A year ago, the Refinance Index was at 6614.0.
MBA said in its latest Weekly Mortgage Applications Survey that overall application activity nudged up from the previous week as the Market Composite Index -- a measure of total mortgage applications -- increased by 2.8% to 878.7. Last year at this time, the measure was 1265.4.
Refinances accounted for 56.4% of total applications, up slightly from the previous week, reported MBA.
The Purchase Index edged down 0.2% to 422.6, according to the Washington D.C.-based group.
The 30-year fixed-rate mortgage averaged 5.59% this week, up only 1 basis point (BPS) from last week, according to Freddie Mac's Primary Mortgage Market Survey of 125 lending thrifts. At the same time last year, it averaged 5.67%.
The 15-year also increased 1 BPS to 4.88%, said the government sponsored enterprise.
Freddie averaged the 1-year Treasury-indexed adjustable-rate mortgage (ARM) at 3.47%, down 3 basis points from last week and the lowest it has been since the week ending June 27, 2003, when it averaged 3.45%.
While the Federal Reserve Board has pointed to low inflation, ample unemployment and unused business capacity as reasons for keeping the federal funds rate at 1% for some time now, a recent speech given to the Economic Club of New York by Fed chairman Alan Greenspan indicated this will change.
"The current federal funds rate is accommodative...at some point, it will have to rise back to a more neutral state, because it is inconsistent with general long-term stability," Greenspan said. "This is a very special case that we're dealing with."
While none of the mortgage industry experts surveyed at Bankrate.com see lower rates anytime soon, the majority seemed to take note of the Fed's indications as rate predictions continued to stay away from a downturn. This week, (56%) of the panel voted rates will stay the same over the next month and a half, and the rest (44%) forecast a rise.
At Thursday's market close, the 10-year Treasury note yield was 4.01% and the price 99 26/32 -- almost unchanged from the close a week ago.