Mortgage activity was mostly unchanged, except purchase applications -- which were a little more firm. While long-term rates jumped from a five-week decline, one industry outlook has lowered its projection on these rates for the remainder of the year, while raising it for ARMs.
The 30-year fixed-rate mortgage averaged 6.08% this week and the 15-year 5.49%, both up 10 basis points (BPS) from last week, according to Freddie Mac's latest Primary Mortgage Market Survey. A year ago, the averages for the long-term mortgages were respectively 5.94% and 5.27%.
Continuing its upward path, the 1-year Treasury adjustable-rate mortgage (ARM) average of 4.17% rose five BPS within the past seven days, and stands much higher than the 3.67% average at this time last year, the survey said.
Freddie chief economist Frank Nothaft attributed this week's upward movement in rates to "expectations that the Federal Reserve Board (Fed) is willing to move more aggressively if inflation should become an issue." He noted, however, that inflation "seems to be under control."
Nothaft's comments were in line with those of Fannie Mae economists David Berson and Orawin Velz, who said in their latest monthly industry outlook that the Fed will move at a measured pace as strong productivity growth will keep inflation from rising sharply.
But, non-abrupt inflation will not prevent rates from moving up.
"Long-term interest rates should move upward while the Fed is tightening monetary policy, but the increase is likely to be more modest than the increase in short-term rates," Berson and Velz said.
Accordingly, they raised their forecast for the 1-year Treasury-indexed ARM in the third and fourth quarters this year to respectively 4.32% and 4.69%, up 13 BPS and 22 BPS from its predictions in June.
Meanwhile, their predictions for the 30-year in the remaining two quarters of the year at 6.17% and 6.40% are much lower than their previous forecasts of 6.36% and 6.56%, and below recent projections by Freddie and the Mortgage Bankers Association of America (MBA).
At Bankrate.com, 86% of the mortgage industry "experts" surveyed this week expect mortgage rates to rise, while the rest (14%) believe rates will stay about the same (plus or minus two 2 BPS).
MBA reported overall applications edged higher -- the Market Composite Index increased 0.6% from the previous week to 621.4. A year ago, the index measured 972.4.
The uptick within the past week was due to purchase application activity, which grew 1.0%, while refinancing activity nudged down.
"The purchase market continues very strong, in line with the numbers we have seen for new home and existing homes sales," said Jay Brinkmann, MBA's vice president of Research and Economics, in a statement. "In addition, while the number of purchase applications has increased by 4 percent over the last year, the dollar volume of applications has increased by more than 15 percent, driven by an average purchase loan size that has increased to $215,800 last week versus $194,900 one year ago."
The refinance share of total mortgage applications reportedly slipped to 36.8%, but the ARM share increased to 33.3% of total applications from 31.3% the previous week.
The 10-year Treasury note closed Thursday at a price of 101 12/32 and 4.57% yield, while last week it closed at a yield of 4.46%.