As fixed rates rose this week, the one-year adjustable-rate mortgage tumbled to its lowest level in nearly three decades — luring in more ARM borrowers. The outlook for the one-year ARM is a continued decline.
Bouncing off its record-low reached last week, the average 30-year fixed-rate mortgage moved 0.02 percent higher to 4.21 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended Thursday. The 30-year was 5.00 percent a year ago.
An analysis of the 10-year Treasury — a benchmark for where mortgage rates are headed — suggests mortgage rates might be higher in next week’s reports.
In its October economic outlook, Fannie Mae predicted that the 30-year will average 4.3 percent this quarter and through the third quarter of next year.
Half of the panelists surveyed by Bankrate.com for the week Oct. 21 to Oct. 27 predicted that mortgage rates will not move during the next week or so. A third projected an increase and 17 percent expected a decline.
The difference between rates on jumbo mortgages — loans above $417,000 — and mortgages with conforming loans amounts was reduced this past week, making jumbo rates more competitive, according to the Mortech-Mortgage Daily Mortgage Market Index report for the week ended Wednesday.
Down a whopping 0.13 percent, Freddie said the one-year Treasury-indexed ARM averaged 3.30 percent — its lowest level since 1984. The one-year ARM was 4.54 percent at this same time last year. Fannie projects that the one-year will average 3.4 percent in the fourth quarter then spend the next two quarters at 3.3 percent.
Last week, when fixed rates hit a record-low and the one-year ARM was higher, 5.8 percent of prospective borrowers opted for an ARM, more than 5.4 percent the prior week, based on the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Oct. 15.
ARM share of applications is projected by Fannie to be 6 percent this quarter then steadily rise to 10 percent by the fourth quarter of 2011.
New mortgage activity moved lower this week based on the Mortgage Market Index, which fell to 325 from 331 in the week ended Oct. 14. The index reflects new activity by loan originators.
The share of new activity tied to refinance transactions eased to 62 percent this week from 63 percent last week, according to the Mortech-Mortgage Daily report.
Fannie predicted that refinance share of originations will be 76 percent in the fourth quarter then fall to around two-thirds in the first quarter of 2011. Refinance share is expected to decline further — to 37 percent by the end of next year.