Market Momentum Diminishes

The 30-year fixed-rate mortgage averaged 5.94% this week, inching up 5 basis points (BPS) from last week, according to Freddie Mac’s latest Primary Mortgage Market Survey. Last year at this time, this average was lower at 5.79%.

Freddie said the 15-year average moved up 2 BPS from last week to 5.25%.

Unchanged from last week, the 1-year Treasury-indexed adjustable-rate mortgage reportedly averaged 3.69%. Meanwhile, the ARM share of activity increased to 31.7% of total applications from 29.4% the previous week, the Mortgage Bankers Association of America (MBA) reported.

“Although this past month’s dramatic rise in mortgage rates is consistent with an economic recovery, it will take more than one month of strong employment gains to verify this recovery is sustainable,” Freddie’s chief economist Frank Nothaft said in a statement. “The market is behaving as though the recovery is a fait accompli and has entered a volatile period of trying to outguess the Federal Reserve Board’s next move.”

At Thursday’s close, the 10-year Treasury note had a 4.38% yield and price of 96 30/32. Last week, the note had a 4.36% yield.

Treasury yields went up Wednesday after Fed chairman Alan Greenspan gave testimony before the Joint Economic Committee.

“The federal funds rate must rise at some point to prevent pressures on price inflation from eventually emerging,” he said. “As yet, the protracted period of monetary accommodation has not fostered an environment in which broad-based inflation pressures appear to be building. But the Federal Reserve recognizes that sustained prosperity requires the maintenance of price stability and will act, as necessary, to ensure that outcome.”

Meanwhile, the mortgage industry panel surveyed at Bankrate.com advised home hunters to lock in their rates this week — 63% of the panelists predict rates will rise over the next month and a half, 25% believe rates will stay about the same (plus or minus 2 basis points) and only 12% predicted rates will fall over that period.

“All signs point to higher rates and the Fed seizes every opportunity to remind us that higher rates are coming,” said Greg McBride, Bankrate.com’s senior financial analyst. “The best hope for a pullback in mortgage rates would be a disappointing employment report May 7. But don’t count on it.”

The MBA, however, said in their most recent forecast that the 30-year fixed-rate mortgage average should remain below 6% until the second quarter of 2005. The group holds that in order to revise their forecast, strong financial data in the recent employment, retail sales and inflation reports, would need to sustain for at least three months.

The Market Composite Index, or the combined measure of refinance and purchase loan application activity, fell 5.6% from the previous week to 744.5, according to the MBAs latest Weekly Mortgage Application Survey. Last year at this time, this index was at 1055.8.

The Refinance Index continued to decrease, this time around by 10.9% to 2550.3, the group reported. The refinance share of mortgage activity decreased to 47.3% of total applications from 50.4%.

Purchase application activity, reflected in MBAs Purchase Index, increased slightly from the prior week to 434.1, according to the report.