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Mortgage Rates Likely to Tumble

Interest rates on residential loans moved little this past week. But the next report will probably reflect a significant improvement.

Freddie Mac’s Primary Mortgage Market Survey for the week ended Nov. 26 revealed that 30-year fixed rates averaged 3.97 percent.

There was little change from the previous week, when 30-year rates were 3.99 percent. A 32-basis-point decline, however, was recorded from the same week in 2013.

For the month of October, 30-year fixed rates on conforming loans averaged 4.31 percent, off 2 basis points from September, according to Freddie’s regulator — the Federal Housing Finance Agency.

In the upcoming survey from Freddie, fixed rates are likely to be around 9 BPS better based on an analysis of Treasury market activity.

During the days when lenders were surveyed by Freddie, the 10-year Treasury yield averaged 2.29 percent, based on Treasury Department data. As of Friday morning, the 10-year yield was roughly 2.20 percent.

Helping pull down the 10-year yield on Friday were plunging oil prices, which in turn will drag down gas prices and reduce potential inflation.

However, three-quarters of panelists surveyed by Bankrate.com for the week Nov. 26 to Dec. 3 see no change in mortgage rates ahead during the next week. A quarter predicted rates will fall at least 3 BPS, and none forecasted a decline.

Freddie’s secondary rival, Fannie Mae, predicted in its Housing Forecast: November 2014 that 30-year rates will average 4.0 percent in the fourth quarter then increase 10 BPS every three months thereafter through the end of next year.

The Mortgage Bankers Association predicted in its MBA Mortgage Finance Forecast that 30-year rates will average 4.1 percent during the current quarter, 4.4 percent in the following three-month period and 4.6 percent in the second-quarter 2015.

Jumbo rates were 7 BPS higher than conforming rates in the U.S. Mortgage Market Index report from LoanSifter-Optimal Blue and Mortgage Daily for the week ended Nov. 21. The jumbo-conforming spread was cut from 9 BPS the previous week.

Freddie said 15-year fixed rates averaged 3.17 percent, no different than in the week ended Nov. 20. The appeal of shorter-term loans diminished as the spread between 15- and 30-year mortgages narrowed to 80 basis points from 82 BPS a week earlier.

At 3.01 percent, five-year, Treasury-indexed, hybrid, adjustable-rate mortgages were the same as in Freddie’s previous report.

Fannie’s forecast has hybrid ARMs going from 3.0 percent in the current quarter to 3.1 in the first-quarter 2015 and 3.2 percent three months later.

One-year Treasury-indexed ARMs were also unchanged from the previous week at 2.44 percent, Freddie said. A 16-basis-point drop was made from the week ended Nov. 27, 2013.

One-year ARMs will average 2.4 percent in the fourth-quarter 2014, according to Fannie. They will then rise to 2.5 percent in the following three-month period and 2.7 percent in the second-quarter 2015.

The index for one-year ARMs, the one-year Treasury yield, was 0.14 percent Wednesday, unchanged for four consecutive trading sessions.

Another ARM index, the six-month London Interbank Offered Rate was 0.33 percent Wednesday, according to Bankrate.com. LIBOR was slipped from 0.34 percent a week earlier.

ARMs accounted for 11.1 percent of all activity in the latest Mortgage Market Index report. ARM share widened from 10.9 percent seven days earlier.

Fannie expects ARM share during the fourth-quarter 2014 and first quarter of next year to be 10 percent then rise to 11 percent in the following quarter.

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