30-Year Could Reach 6.75% This Year

The average 30-year fixed-rate mortgage came in at 5.67%, falling 7 basis points from last week, according to Freddie Mac’s latest survey of 125 thrifts, commercial banks and mortgage-lending companies. The figure is just 3 BPS higher than last year at this time.

“Financial markets see inflation as being well managed by the Fed, and that allows long-term interest rates to remain low, with mortgage rates even falling a little more this week,” said Freddie chief economist Frank Nothaft in the announcement.

In a conference call with the Homeownership Alliance Wednesday, forecasts for the 30-year at the end of 2005 ranged from 6.25% to 6.75% on the high end. Participating in the mortgage finance outlook call were the chief economists of four member companies of the Alliance: Freddie’s Frank Nothaft, Fannie Mae’s David Berson, Paul Merski of the Independent Community Bankers of America and David Seiders of the National Association of Home Builders.

The 15-year edged down 4 BPS in the past seven days to 5.15%, Freddie reported.

The closely watched 10-year Treasury yield was 4.16% early Friday, with a price of 100.63.

Unchanged from last week, the average 5-year Treasury-indexed adjustable-rate mortgage remained at 5.05%. Nothaft forecasted the 5/1 hybrids would continue being the most popular type of ARM this year.

The only rate uptick occurred in the 1-year Treasury-indexed ARM, which nudged up 1 BPS within the past week to 4.11%, Freddie said. Merski, of the ICBA, predicted the 1-year ARM average will end the year at 5.3%, adding that due to slowed mortgage demand bankers are adjusting by structuring variable ARM products.

“We’re looking at probably as much as 40% of the mortgage-lending market being in the adjustable-rate area and some of the more innovative products structured on various types of rates other than the 30-year fixed,” Merski said.

For the week ending Jan. 14, ARM share remained about one-third of mortgage applications, according to the Mortgage Bankers Association’s latest application survey.

The consensus among the economists was that short-term rates will rise more than long-term rates in 2005.

At Bankrate.com, 42% of the 100 surveyed “mortgage experts” see no change in rates (plus or minus 2 basis points) over the next 30 to 45 days. The rest are evenly split on whether rates will rise (29%) or fall (29%).

The low-rate environment bolstered mortgage application activity by 16%, raising the Market Composite Index to 682.9 — the highest level since the week ending Dec. 10, the MBA reported.

Purchase money requests jumped 14% from the previous week. And while refinance application activity was up 19%, the refi share of total applications remained near half.

Fannie’s Berson predicted originations in 2005 will total $2.1 trillion — the mortgage market’s fourth best year. Nothaft said this year’s higher rates will push down the refi share of originations to 39% — the lowest in five years. Of this year’s refinance transactions, about 75% to 80% will be for cashout, unlike peak refi years 2002 and 2003 when refinances were done mostly to get a lower rate — as only 25% of refis had a cashout component in 2003, Nothaft added.