Mortgage Business Better

The mortgage market may shine brighter in the near future if rates keep falling at the pace they did this week. Down to levels not seen since April, the 30-year fixed-rate mortgage average of 6.01% and the 15-year at 5.42%, each sunk 20 BPS within the past seven days, according to Freddie Mac’s latest Primary Mortgage Market Survey.

“Long-term mortgage rates this week fell to levels equal to those experienced in April, reacting in large part to last Friday’s news of less than stellar job growth in June,” said Freddie’s chief economist Frank Nothaft in an announcement.

The government’s employment report showed just 112,000 nonfarm payroll jobs were added for the month — about half the number that was expected. The report was released just two days after the Federal Open Market Committee raised the federal funds target to 1.25%.

Even the 1-year Treasury-indexed adjustable-rate mortgage (ARM), which responds more directly to the Fed’s moves, slumped this week — falling by 14 BPS to 4.05%, Freddie said. Meanwhile, the ARM share of total mortgage applications reportedly edged up to 34.1% from the prior week, according to the Mortgage Bankers Association of America (MBA)

Fannie Mae economist David Berson said, in his weekly commentary, that “with the economy expanding strongly, core inflation moving upward, and the Fed in ‘tightening mode’ this sort of drop in interest rates wasn’t supposed to occur.” Rates in the coming weeks will depend on further economic data as it will show whether economic growth is just pausing for a brief moment, or if it’s really stumbling, he said.

Freddie’s economists said, in their monthly outlook, that the economy “still shows some considerable signs of weakness,” which possibly explains why the group now expects the 30-year to average 6.4% and 6.5% respectively in the third and fourth quarters, instead of the 6.6% and 6.7% it predicted a month ago.

At Bankrate.com, three-fourths, or 75% of its weekly surveyed panel believe that mortgage rates will rise over the next 30 to 45 days, while the other 25% predict rates will stay about the same (plus or minus 2 BPS). None expect rates to fall.

In the meantime, home hunters already started herding into mortgage shops to take advantage of the low rates; the stack of mortgage applications grew a whopping 19.5% within a one-week period, bringing the Market Composite Index to 687.0 — the highest level since May, MBA reported.

The surge was mostly due to greater refinancing activity — the Refinance Index jumped by 27.6% from the previous week, MBA said. The refinance share of total applications increased to 35.8% from 33.4%.

Purchase money application activity was not far off pace as it increased by 15.0% during the past week.

But not even the week’s healthy jump can bring mortgage activity up to the level of a year ago, when the 30-year averaged 5.40% and applications were stacked nearly twice as high.

The 10-year Treasury note closed Friday with a 4.46% yield and price of 102 9/32. Last week, the yield closed at 4.63%.