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| In anticipation of the Fed’s possible future moves, adjustable rates spiked up this week — and will probably continue to do so through the end of 2004, one economist indicated, and the yield on the 10-year Treasury climbed more than 100 basis points. As for mortgage market activity, the holiday weekend slowed application submissions for the fifth consecutive week.
In a one-week period, the 1-year Treasury-indexed adjustable-rate mortgage (ARM) average jumped 16 basis points (BPS) from last week to 4.14%, which is also considerably higher than the average of 3.54% a year earlier, secondary lender Freddie Mac reported. Earlier this week, Federal Reserve Board Chairman Alan Greenspan said the rate committee’s conclusion still lies in that “monetary policy accommodation can be removed at a pace that is likely to be measured.” The federal funds target rate has been kept at 1% for months, but Greenspan added that the committee was “prepared to do what is required to fulfill our obligations to achieve the maintenance of price stability so as to ensure maximum sustainable economic growth.” Freddie chief economist Frank Nothaft said, “The 1-year ARM responds more directly to movements by the Federal Reserve Board and market chatter has it that the Fed will not only raise rates at the end of this month, but may do so consecutively throughout the rest of the year.” In its updated economic outlook, the mortgage giant said it is nearly a guarantee the Fed’s rate committee will vote to increase the current federal funds rate target to 1.25% at its June 30 meeting. Because Greenspan has previously indicated it is preferable to gradually raise the target over time in a series of small hikes to prevent pressures on price inflation from eventually emerging, Freddie anticipates the increments each time will stick to 25 BPS. “News like that is good news for keeping long-term fixed-rate mortgage rates low since those are more sensitive to inflationary expectations,” Nothaft added. Accordingly, long-term rates barely moved during the past seven days; the 30-year fixed-rate mortgage average reportedly came in 2 BPS higher at 6.30% and the 15-year nudged up 4 BPS to 5.67%, Freddie said. The refinancing frenzy was fueled a year ago by 45-year record low rates when the 30-year was at 5.21% and the 15-year was at 4.60%. Nothaft said the future direction of both short- and long-term mortgage rates will depend largely on how aggressive or how measured the Fed hikes rates. In the meantime, Freddie’s recent forecast has the 30-year averaging 6.6% next quarter. A majority, or 80%, of Bankrate.com’s panel of industry bankers and originators voted rates will head up over the next month and a half, the remaining 20% predicted rates would remain unchanged. None of those surveyed saw rates going down. At the market’s close Thursday, the 10-year Treasury note traded at a price of 98 20/32 and 5.47% yield — almost a percentage point higher than 4.71% a week ago. Consumers took a short vacation from mortgage shopping for the Memorial Day weekend, according to the Mortgage Bankers Association of America (MBA). The group reported mortgage applications dipped by 8.9% week-to-week, resulting in a Market Composite Index measure of 568.8 — one-third the level a year ago when rates were at record lows.< |
