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Fixed Mortgage Rates Drop, Could Fall Further

Fixed rates on home loans retreated over the past seven days, and signs point to an even bigger decline in the next report.

Thirty-year fixed rates averaged 4.04 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended July 23.

Compared to seven days prior, 30-year rates were down five basis points, while a nine-basis-point retreat was recorded from a year prior.

Behind the decline were weaker-than-expected second-quarter earnings from blue chip companies, according to Freddie Mac Chief Economist Sean Becketti.

Joe Farr, a director at MBSQuoteline, noted in a written statement that prices on mortgage-backed securities have increased since Freddie conducted its survey. Bond yields move lower when bond prices rise.

“MBS prices have improved seven out of the last eight days,” Farr added.

Mortgage Daily’s analysis of Treasury market activity suggests that fixed rates could be approximately seven BPS lower in Freddie’s next survey.

But a plurality of panelists surveyed by Bankrate.com for the week July 23 to July 29 predicted that rates won’t move more than two BPS over the next week. Another 36 percent predicted an increase, and just 18 percent expected rates to decline.

Freddie predicted in its latest economic outlook that 30-year rates will average 4.1 percent in the current quarter
then rise 20 BPS each quarter until the second-quarter 2016.

Freddie’s secondary rival, Fannie Mae, predicted that 30-year rates will
average 4.0 percent in the third quarter and rise 10 BPS each of the following four quarters.

The Mortgage Bankers Association was a little more pessimistic than either of the government-sponsored enterprises — predicting that 30-year rates will average 4.2 percent in the current quarter and 4.4 percent in the fourth quarter.

In the U.S. Mortgage Market Index report from OpenClose and Mortgage Daily for the week ended July 17, jumbo rates were 20 BPS lower than conforming rates. The jumbo-conforming spread widened from a negative 17 BPS the previous week.

Freddie’s survey had
15-year fixed rates averaging 3.21 percent, four BPS better than in the week ended July 6, 2015. The spread between 15- and 30-year rates narrowed to 83 BPS from 84 BPS in the last report.

At 2.97 percent, five-year Treasury-indexed, hybrid, adjustable-rate mortgages were a basis point worse than in Freddie’s survey a week earlier.

Freddie expects 5/1 ARMs to average 3.2 percent in the third quarter and 3.4 percent three months later.

Hybrid ARMs are projected by Fannie to average 3.1 percent in the current quarter then increase 10 BPS each of the next four quarters.

A four-basis-point week-over-week increase left one-year ARMs averaging
2.54 percent in Freddie’s most-recent report. The one-year averaged 2.39 percent in the week ended July 24, 2014.

In Freddie’s forecast, the one year is expected to average 2.5 percent this quarter and rise 10 BPS each of the following three quarters.

Fannie expects one-year ARMs to average 2.6 percent in the third quarter then climb 10 BPS each of the following two quarters.

The one-year Treasury yield, which dictates rate and payment adjustments on one-year ARMs, was 0.33 percent Thursday, surging from 0.29 percent seven days prior, according to Treasury Department data.

The six-month London Interbank Offered Rate — a less-utilized ARM index — was
0.47 percent as of Wednesday, Bankrate.com reported. LIBOR inched up a basis point from a week earlier.

ARM share was 10.0 percent in the latest Mortgage Market Index report, widening from 9.6 percent the previous week.

Freddie predicts ARM share will be nine percent in the second half of the year.

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