Fixed rates eased during the past week but are likely to jump based on a surge today in the 10-year Treasury yield. As indices used for adjustable-rate mortgages tumbled, the yield on the one-year ARM jumped. One forecast calls for mortgage rates to begin a steady ascent next quarter as refinance share begins a steady descent.
In its Primary Mortgage Market Survey for the week ending May 21, Freddie Mac said the average 30-year fixed-rate mortgage was 4.82%, 4 basis points lower than seven days earlier. A year prior, the 30-year hovered at 5.98%.
In its May 2009 Economic and Housing Market Outlook, Freddie predicted that the 30-year will average 4.8% this quarter and steadily climb to 5.9% by the end of next year.
The government’s purchases of nearly $900 billion in mortgage-backed securities have helped keep a lid on mortgage rates, Freddie’s chief economist Frank Nothaft explained in the report.
Down just 2 BPS from last week, Freddie reported the average 15-year fixed-rate mortgage at 4.50%.
Fixed rates are likely to rise based on the 10-year Treasury yield, which jumped to 3.346% during trading today from 3.131% in last week’s report. Impacting the 10-year were fewer-than-expected MBS purchases by the U.S. government and a downgrade warning for the debt of the U.K. government.
A majority of panelists surveyed by Bankrate.com for the week May 21 to May 27 expected no change in mortgage rates over the next 35 to 45 days. However, 38% forecasted an increase of at least 3 BPS, while just 7% predicted a decline.
The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.79% in Freddie’s survey, 3 BPS better than the previous week.
The one-year Treasury-indexed ARM, however, averaged 4.82%, 11 BPS more than Freddie’s report last week. Freddie predicts the one-year will average 4.8% this quarter then slowly rise to 5.5% by the fourth-quarter 2010.
But as the one-year ARMÂ increased during the most recent week, the underlying index — the yield on the one-year Treasury bill — fell to 0.44% yesterday from 0.52% the prior Wednesday, according to data from the U.S. Department of the Treasury.
Subprime ARMs often use the London Interbank Offered Rate as the index. LIBORÂ was 1.28% yesterday, down from 1.43% a week prior, Bankrate.com reported.
ARM share edged up to 2.4% in the Mortgage Bankers Association’s Weekly Mortgage Application Survey for the week ended May 15 from 2.3% a week earlier. Freddie expects ARM share to sit at 2% through December, then steadily rise to 6% by the fourth-quarter of next year.
A 5% increase in refinance applications pushed the refinance share to 74% from the prior week’s 72%, MBA reported. Freddie predicts that the refinance share will drop to 60% by the end of this year and 46% by the end of 2010.
Stronger refinance activity drove overall loan applications 2% higher on a seasonally adjusted basis in MBA’s survey. MBA’s Market Composite Index was 915.9.
MBA said purchase applications, however, eased 4%.
