Mixed Rate Outlook

The 30-year fixed-rate mortgage averaged 6.21%, increasing 3 basis points within the past seven days and 6 BPS above the level at this time last year, Freddie said in its latest Primary Mortgage Market Survey.

“The gain in employment in December exceeded the consensus forecast, and helped ease fears about the state of the economy,” said Frank Nothaft, Freddie chief economist, in an announcement. “But stronger employment and higher wages put upward pressure on inflation, which, in turn, translates into higher interest rates.

The 15-year averaged 5.96%, ticking up 2 BPS from last week, Freddie reported.

At 4.73% near close of the market, the 10-year Treasury note yield was 3 BPS higher than last Thursday.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 6.03%, reportedly only 1 BPS above the level a week ago.

The 1-year Treasury-indexed ARMs average stepped up 2 BPS from last week to 5.44%, Freddie added. The 1-year T-bill had the same increase over a one-week period to 5.02% on Tuesday, according to Federal Reserve data.

As for the direction of mortgage rates, the panel of 100 mortgage industry bankers, brokers and individuals surveyed by Bankrate.com this week was evenly split on whether rates would go up (40 votes) over the next 35 to 45 days or remain relatively unchanged (40), while the remaining fifth predicted a downturn.

For the year, Freddie expects rates on 30-year fixed-rate mortgages to remain below 6.5 percent, as low inflation is likely to keep long-term Treasury yields low, according to the company’s January economic outlook.

ARM rates, on the other hand, will be “less attractive to borrowers in 2007 than they have been in recent years,” Nothaft said in the announcement.

Freddie’s forecast has the 1-year Treasury-indexed ARM average at 5.5% each quarter of this year and the ARM share of home purchase mortgages falling from 21% last year to 14% this year — the lowest level since 2001.

Currently, ARMs comprise a fifth of total applications, unchanged from the previous week, the Mortgage Bankers Association reported on Wednesday.

The overall volume of mortgage applications, however, jumped 17 percent for the week ending Jan. 5, as refinance requests surged 17% and purchase money loan demand soared 16% above the previous week, MBA said.

The refinance share of applications reportedly remained at 48%.