Group Forecasts 6.7% 30-Year in 12 Months

Down to the lowest level since the first week of May, the 30-year average of 6.21% fell four basis points (BPS) from a week ago, according to Freddie Mac. The average for the 15-year slipped two BPS to 5.62%.

“As expected, long-term mortgage rates were relatively unaffected by the Fed’s recent actions to preempt any future inflationary trend,” said Frank Nothaft, Freddie’s chief economist, in a statement.

The spread between the 15-year and the 30-year, which was as high as 65 BPS in Freddie’s June 3 survey, has fallen each week since and now stands at 59 BPS — leaving 15-year loans less attractive.

The Federal Reserve Board made the long-anticipated move Wednesday when its rate committee raised the federal funds target by 25 BPS to 1.25%. The Fed continued to say it “believes that policy accommodation can be removed at a pace that is likely to be measured,” but that it “will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.” Economists have it that the target will increase to 2.0% or 2.25% by the end of the year, which means mortgage rates, especially the short-term, are likely to increase.

The rise in long-term ones won’t be too significant, according to the Bond Market Association. In its midyear forecast survey, the group said it expects the 30-year to end the year at 6.6% and up to 6.7% by next June.

In the meantime, 86% of the surveyed panel at Bankrate.com was evenly split on whether mortgage rates would rise or stay about the same (plus or minus 2 basis points) in the next month and a half. Only 14% voted for a downturn.

Changing course after a two-week increase, less mortgage shopping occurred within the past seven days, according to the Mortgage Bankers Association of America (MBA). The Market Composite Index, which is a measure of mortgage loan applications for purchases and refinancings, fell by 4.4% from the prior week to 575.0 — almost two-thirds below the level a year ago when the 30-year fixed-rate was at 5.24%.

The 1-year Treasury-indexed adjustable-rate mortgage (ARM) came in at 4.19% — an increase of six BPS within the past seven days, Freddie reported.

“And, as also expected, short-term mortgage rates moved upward in response to those same actions,” Freddie’s Nothaft added.

Even as the 1-year ARM is currently much higher than last year, the ARM share of total applications edged up from the previous week to 33.9% — way above the 13.4% share the MBA reported a year ago.

In contrast to the 1-year Treasury-indexed ARM, the cost of funds index, or COFI, was reported by the Federal Home Loan Bank of San Francisco as falling to a record low 1.708%. As a result, COFI-indexed ARMs are becoming more attractive than those that are Treasury-indexed.

The refinance share of total mortgage applications was reportedly unchanged from the previous week at 33.4%.

The 10-year Treasury note traded at a 4.46% yield and price of 102 7/32 Friday afternoon. Last week, the note closed at a yield of 4.69%.