Weaker Mortgage Market

The average 30-year fixed-rate mortgage stepped up six basis points (BPS) within the past seven days to 5.76% and the 15-year climbed eight to 5.16%, according to Freddie Mac’s latest survey of 125 thrifts, commercial banks and mortgage-lending companies.

The increase was due to “October’s fervent job growth statistics, mixed with upward revisions in previous months, [which] led financial markets to believe the economy is picking up steam,” Freddie’s chief economist Frank Nothaft said in a written statement.

The 1-year Treasury-indexed adjustable-rate mortgage (ARM) reportedly rose more steeply than its long-term counterparts — jumping 16 BPS from last week to 4.16%.

On Wednesday, the Fed raised the federal funds rate target by 25 BPS to 2%, marking the fourth time since June it has been pushed up from the 46-year low of 1%. The rate represents the interest that banks charge each other on overnight loans and the main tool the Fed uses to influence the economy.

In its announcement, the Federal Open Market Committee said the robust underlying growth in productivity is providing ongoing support to economic activity, noting improved labor market conditions, as well as the moderate-pace growth of output, despite the rise in energy prices.

The Associated Press (AP) reported that a few weeks ago, economists reportedly expected the Fed to pause on raising the target, but are currently predicting another 0.25% rate hike at the Fed’s next meeting on Dec. 14.

“We should expect additional rate hikes,” Joel Naroff, president of Naroff Economic Advisors, reportedly told AP. “With the view that the labor markets are coming back and inflation well contained, there is little reason to expect any stoppage in the process for quite some time.”

Already, Wells Fargo said it was going to increase the prime rate on many short-term consumer and business loans to 5% — and other commercial banks followed suit, AP reported. Because prime rates follow the funds rate, the next rate hike would take the prime rate up to 5.25%.

In line with the outlooks, the surveyed industry panelists at Bankrate.com see an upturn in mortgage rates; the majority (71%) believed rates will rise, 29% predict they’ll remain about the same and none foresaw a downturn.

Mortgage application activity edged down, as reflected in the Market Composite Index which was off 5% from last week to 727.3, according to the Mortgage Bankers Association’s latest applications survey. Last year at this time when the 30-year was about a quarter percent higher than its current level, the index stood at to 626.0.

Refinance requests fell 7% from the previous week, MBA said, and purchase money application activity edged down 3%.

The share of refinance applications nudged down closer to 45%, while the ARM share inched up to over 35%.