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Mortgage Rates Set to Decline

Fixed interest rates on home loans moved a hair lower this past week. A possibly more substantial retreat is likely in the next report.

At 3.84 percent, 30-year fixed rates averaged one basis point less in the week ended May 21 than a week earlier.

The average, reported by Freddie Mac based on its Primary Mortgage Market Survey, was down 30 BPS from the same week in 2014.

The movement came amid positive housing news, according to Freddie Mac Deputy Chief Economist
Len Kiefer.

“Housing starts surged 20.2 percent to a seasonally adjusted pace of 1.14 million units in April, the highest level since 2007,” Kiefer said in the report. “As homebuying season moves into full swing, home builders remain positive about home sales in the near future. Although the NAHB housing market index slipped 2 points to 54 in May it is still above 50, indicating that on balance builders remain optimistic about housing markets.”

Thirty-year fixed rates averaged 4.062 percent in April, according to Ellie Mae Inc.’s Origination Insight. That was up from 4.041 percent a month earlier but lower than 4.622 percent a year earlier.

On conventional mortgages, 30-year fixed rates averaged 4.151 percent last month, while the averaged dropped to 3.989 percent on loans insured by the Federal Housing Administration and 3.830 percent on mortgages guaranteed by the Department of Veterans Affairs.

Mortgage Daily analyzed this week’s Treasury market activity and determined that fixed rates are likely to be around six basis points lower in Freddie’s next survey.

A plurality of panelists surveyed by Bankrate.com agreed with Mortgage Daily’s forecast and predicted mortgage rates will fall at least three BPS over the next week. The remaining 60 percent were evenly split over whether rates would rise or stay where they are.

In its
May 2015 Economic and Housing Market Outlook, Freddie predicted 30-year fixed rates will climb from 3.8 percent this quarter to 4.1 percent in the third quarter then settle at 4.3 percent in the final quarter of this year.

Interest rates on jumbo mortgages were 16 BPS more than on conforming loans in the U.S. Mortgage Market Index report from LoanSifter/Optimal Blue and Mortgage Daily for the week ended May 15. The jumbo-conforming spread thinned from 17 BPS the prior week.

A two-basis-point retreat left average 15-year fixed rates
at 3.05 percent in Freddie’s report. The difference between 15- and 30-year rates widened to 79 BPS from 78 BPS in the week ended May 14.

Ellie reported that 15-year mortgages accounted for 10 percent of April’s business. Fifteen-year share fell from 11 percent a month earlier and 12 percent a year earlier.

Freddie said five-year, Treasury-indexed, hybrid, adjustable-rate mortgages averaged 2.88 percent, a basis point less than in the previous report.

Freddie’s forecast has hybrid ARM rates climbing from 2.9 percent in the second quarter to 3.2 percent three months later then settling at 3.4 percent in the fourth quarter.

One-year Treasury-indexed ARMs averaged 2.51 percent, three BPS worse than in Freddie previous survey. One-year ARMs averaged 2.43 percent in the week ended May 22, 2014.

In Freddie’s outlook, one-year ARM rates are expected to average 2.4 percent in the current quarter then rise 10 BPS each of the following four quarters..

The one-year ARM adjusts based on the one-year Treasury yield, which closed Thursday at 0.22 percent, off from 0.23 percent one week prior, according to Treasury Department data.

A less-utilized ARM index, the six-month London Interbank Offered Rate — or LIBOR — was 0.41 percent as of Wednesday, the same as seven days earlier, Bankrate.com reported.

ARM share of product-and-pricing inquiries was 9.9 percent in the Mortgage Market Index report for the week ended May 15, up from 9.3 percent the prior week.

During April, ARM share of loan originations was 4.5 percent, Ellie reported, widening from 4.2 percent the prior month but far more narrow than 7.6 percent in the year-earlier report.

Freddie predicts ARM share will widen from 8 percent in the current quarter to 9 percent in the second half of this year.

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