Mortgage Market Weakens

In this week’s Primary Mortgage Market Survey, Freddie Mac averaged the 30-year fixed-rate mortgage at 5.68%, up 4 basis points (BPS) from last week. Last year at this time, the average stood at 5.90%.

The 15-year came in 2 BPS higher than the prior week at 4.97%, reported the government-sponsored enterprise.

Freddie averaged the 1-year Treasury-indexed adjustable-rate mortgage (ARM) at 3.59%, up 3 BPS from last week. Meanwhile, the ARM share of total mortgage applications edged down to 26.3%, reported the Mortgage Bankers Association of America (MBA).

The Federal Open Market Committee announced Wednesday that it would keep the federal funds rate at 1% and that it believed it could be “patient” in removing the policy accommodation as inflation does not seem to be a threat.

“Following the policy statement, bond yields shot up, taking mortgage rates with them, raising the prospect that mortgage rates will be even higher next week,” said Freddie’s chief economist Frank Nothaft in the announcement.

Freddie’s deputy chief economist, Amy Cutts, forecasted that inflation will linger at about 1.4% in 2004, reported the The News-Sentinel. Cutts added that the year will end with rates in the 6% to 6.25% range, reducing total mortgage originations by 40%.

The mortgage industry experts surveyed at Bankrate.com this week predicted rates run the risk of rising over the next month and a half and advised prospective borrowers to lock in rates. Forty percent of the panel forecasted an upturn in rates, another 40% said they’d remain unchanged, and only 20% said they’d dip. Last week, votes pointed towards a drop.

At the close Thursday, the 10-year Treasury note traded at a yield of 4.17% and price of 100 19/32. A week ago, the note yield closed at 3.95% and the price at 102 12/32.

The latest Weekly Mortgage Application Survey by the MBA showed the Market Composite Index fell 5.2% from the previous week to 868.9. A year ago, the measure of refinance and purchase applications stood at 1171.2.

Reversing the record level reached in the previous week, the Purchase Index sunk 10.0% to 451.6. Meanwhile, the Refinance Index held steady — barely changed at 3296.7. A year ago, the refi index was much higher at 5858.1, said MBA.

The group reported that the share of refinances edged up to 58.5% of total applications. Freddie Mac’s Cutts said this figure will probably decline to 40% by the end of the year, reported the Sentinel.