|
|
| Mortgage activity picked up, while rates nudged up in response to employment news. Although rates are expected to continue upward, long-term rates may be a lot lower than previously expected as an industry giant revised its outlook for the 30-year average next quarter by nearly half a percentage point.
The 30-year fixed-rate mortgage average rose 6 basis points (BPS) within the past week to 5.83%, while the average for the 15-year went up 7 BPS to 5.22%, according to Freddie Mac’s latest Primary Mortgage Market Survey. Meanwhile, the average for the 1-year Treasury-indexed adjustable-rate mortgage (ARM) climbed up only 3 BPS from the prior week to 4.00%. Freddie chief economist Frank Nothaft attributed the increase in mortgage rates to the positive August employment report showing a 144,000 job gain (near the consensus of 150,000) and 41,000 upward revision for July, which “signaled a strengthening economy,” he said in a written statement. While mortgage rates usually jump with positive employment news, Nothaft indicated the uptick was due to offsetting economic news by Federal Reserve Board Chairman Alan Greenspan, who in his testimony to Congress yesterday, “outlined a less robust economy than he previously had portrayed.” The conflicting economic news “may be sufficient to sway the price-stability hawks at the Fed to raise the federal funds target an additional one-quarter percent on the 21st” of this month, Freddie said in its September economic outlook. The target for short-term interest rates is currently at 1.5% and it is expected to rise to 2% within this year or early next year. Freddie said contracts for federal funds futures imply that traders assign a nearly 100 percent likelihood to the increase in the next Fed meeting. “Whatever the outcome of the Fed’s deliberations, fixed-rate mortgage rates are likely to remain low … and, in response to increases in short-term interest rates, adjustable mortgage rates should gradually rise through year’s end,” Freddie said. The mortgage giant’s outlook has the 30-year average in the next two quarters at 5.9% — down 40 BPS from its August forecast. At Bankrate.com, half the mortgage bankers, brokers and other industry individuals surveyed believe mortgage rates will rise over the next month and a half, while a third predict rates will stay about the same (plus or minus 2 BPS), and the remaining 17% think rates will fall. Freddie also increased its forecast for mortgage originations in 2004 from $2.4 trillion to nearly $2.6 trillion. For the week ending Sept. 3, mortgage applications — as reflected in the Market Composite Index — jumped 7.7% to 692.0, according to the Mortgage Bankers Association (MBA). A year ago, the index stood higher at 771.8 (on a seasonally adjusted basis), despite that the 30-year was 61 BPS above its current level. All loan application type indexes — refinance, purchase, conventional, government — increased more than 7% from the previous week, MBA said. The refinance share of total mortgage applications reportedly edged up from the previous week to 41.4% and the ARM share was just shy of one-third. At Thursday’s close, the 10-year Treasury note traded at a price of 100 13/32 and 4.19% y |
