Freddie Forecasts 5.9% 30-Year Next Quarter

Reversing the uptick reported a week ago, the 30-year fixed-rate mortgage average fell 8 basis points (BPS) during the past seven days to 5.75%, and the 15-year decreased 9 BPS to 5.13%, Freddie Mac said in its latest Primary Mortgage Market Survey.

The average for 1-year Treasury-indexed adjustable-rate mortgage, however, inched up for the third week in a row, this time around by 3 BPS to 4.03%, according to Freddie.

Freddie’s chief economist, Frank Nothaft, indicated the ARM average will be much more responsive to the actions the Federal Reserve Board’s rate committee imposes on the federal funds target, currently at 1.5%.

“Next week the policy committee of the Federal Reserve will meet and our expectation is that it will raise short-term rates by a quarter of a percent,” Nothaft said, adding he does not “see this increase as having a significant impact on long-term mortgage rates.“

The Mortgage Bankers Association’s (MBA’s) updated predictions do not suggest any major changes in mortgage rates next quarter — they have the 30-year averaging 6.1 next quarter and the 1-year ARM averaging 4.2%, which are both only 1 BPS lower than their forecasts last month.

Freddie recently made a notable change when it lowered its prediction for the 30-year next quarter to 5.9% — a whopping 40 BPS below its August forecast.

This week, Bankrate.com’s panel of mortgage bankers, brokers and other industry individuals, believe rates will stay about the same in the next month and a half; 57% predicted rates will stay about the same, less than a third predicted an upturn, and a small minority thinks rates will fall.

For the week of ending Sept. 10, the measure of mortgage applications — reflected in the Market Composite Index — edged down 2.0% to 678.2, according to the MBA’s survey of mortgage bankers, commercial banks and thrifts. The index was higher a year ago at 726.7.

Purchase money application activity dropped 4.3%, while refinancing activity decreased only 1.2%, the trade group reported.

Up slightly from last week, the refinance share of mortgage activity amounted to 43.2% and the ARM share to one-third. A year ago, when the 30-year was much higher than its current level at 6.2% and the 1-year ARM was below 3.9%, refinances accounted for half of applications and ARMs only about one-fifth.

The 10-year Treasury note traded at a price of 101 14/32 and 4.07% yield at Thursday’s close, much different from a week ago when it closed at 100 13/32 and 4.19%.