With an end to quantitative easing in sight, fixed rates moved higher. All signs point to a continued run-up through at least the end of next year. But there was no increase this week for adjustable-rate mortgages.
As was projected last week, average 30-year fixed-rate mortgages increased, rising 18 basis points to 4.58 percent, secondary mortgage lender Freddie Mac reported Thursday. Thirty-year rates are 92 BPS higher than the same week in 2012.
Freddie Mac Chief Economist Frank Nothaft explained that fixed rates moved higher leading up to Tuesday’s release of the Federal Reserve monetary policy committee’s minutes for July. He said that committee members are broadly comfortable with the Fed beginning to reduce bond purchases later this year.
“Meeting participants acknowledged mortgage rate increases might restrain housing market activity, but several members expressed confidence the housing recovery would be resilient in the face of higher rates,” Nothaft said. “In fact, existing home sales increased in July to the strongest pace since November 2009 and homebuilder confidence in August rose to its highest reading since November 2005. Both increases occurred after mortgage rates had risen from their spring-time lows.”
There could be around a five-basis-point increase in the 30-year rate by the time Freddie’s next survey is completed based on an analysis of Treasury market activity.
Data supplied by the Department of the Treasury indicated that the yield on the 10-year Treasury note averaged 2.86 percent during the days Freddie surveyed primary lenders for this week’s report. The 10-year yield closed at 2.90 percent on Thursday.
Half of the panelists surveyed by Bankrate.com for the week Aug. 22 to Aug. 28 predicted that mortgage rates will rise at least 3 BPS over the next seven days, while a third see no changes ahead. Just 17 percent projected a decline.
Fannie Mae forecasts the 30-year mortgage at 4.4 percent for the third quarter and 4.6 percent for the fourth quarter. Fannie sees the 30 year also increasing each quarter of next year.
The difference between conforming rates and jumbo rates was 37 BPS in the U.S. Mortgage Market Index report from LoanSifter and Mortgage Daily for the week ended Aug. 16, deteriorating from 29 BPS the previous week.
Fifteen-year fixed rates averaged 3.60 percent in Freddie’s Primary Mortgage Market Survey for the week ended Aug. 22, up 16 BPS from seven days earlier. Borrowers on 15-year loans had rates that were 98 BPS better than 30-year borrowers, a bigger discount than 96 BPS in the previous report.
Compared to the week ended Aug. 15, Freddie said that the five-year, Treasury-indexed, hybrid ARM was down 2 BPS to 3.21 percent.
Fannie predicts that hybrid ARMs will average 3.2 percent this quarter, 3.5 percent in the final three months of this year and even more each quarter of 2014.
No change from a week earlier was reported by Freddie for the one-year Treasury-indexed ARM, which averaged 2.67 percent. But the one year inched up from 2.66 percent in the week ended Aug. 23, 2012.
In Fannie’s outlook, the one-year ARM is predicted to average 2.7 percent in the third quarter and 2.9 percent in the fourth quarter. An increase in the one-year average is also forecasted for each quarter of 2014.
The index for one-year ARMs, the yield on the one-year Treasury note, closed at 0.14 percent today, up from 0.13 percent last Thursday, according to the Treasury Department data.
A competing ARM index, the six-month London Interbank Offered Rate, slipped 1 basis point from a week prior to 0.39 percent Wednesday, Bankrate.com reported.
In the most recent Mortgage Market Index report, ARM share was 9.7 percent, off from the prior week’s 10.1 percent.
ARM share of loan applications in Fannie’s forecast is predicted to be 8 percent in the current quarter and 9 percent in the fourth and following quarter.