Rates continued their downward path, albeit at a much slower pace than the previous week. The 30-year came in at 6.00%, the 15-year at 5.40%, and the 1-year Treasury indexed ARM at 4.02% — respectively slipping 1 BPS, 2 BPS and 3 BPS within the past seven days, according to Freddie Mac’s latest Primary Mortgage Market Survey.

“Taken as a whole, there are few compelling reasons why mortgage rates should dramatically increase right now,” said Freddie’s chief economist Frank Nothaft in the announcement. “In terms of the economy, retail sales, industrial production, and producer prices were all lower than expected in June. Additionally, the Federal Reserve Board appears to be on target in quelling any future surges in inflation.”

Regardless of what happens economically in the short run, the consensus is that rates are headed up in the long run. In its updated long-term mortgage finance forecast, the Mortgage Bankers Association of America (MBA) said the 30-year will average 6.3% in the third quarter — which is just below Freddie’s most recent prediction of 6.4%. The MBA predicts the 30-year average will increase by one to three BPS each quarter through 2007, and at that time has it averaging 7.9%.

The mortgage industry panelists surveyed at Bankrate.com this week seemed to be on the same train of thought. Half of the panel said they believe mortgage rates will rise over the next 30 to 45 days, and the other half was evenly split among those who think rates will fall (25%) and those who predict that they will stay about the same (25%).

The 10-year Treasury note closed Thursday with a 4.48% yield and price of 102 03/32, almost unchanged from last week, when it closed at a 4.46% yield.

As for mortgage activity, not even the current low rates kept it from reversing the big jump reported last week; mortgage applications fell 6.3% and brought the Market Composite Index down to 643.9, MBA said. The stack of purchase money applications decreased by 6.4%, while refinancing apps went down 6.1%.

Last year at this time, when the 30-year averaged 5.52%, mortgage activity was more than double the current pace.

The share of applications that were for refinance remained unchanged from the previous week at 35.8%, MBA reported, but the ARM share fell to 31.5% from 34.1%.\

Despite the recent decline in mortgage shopping, MBA once again raised its forecast of mortgage originations in 2004. MBA lowered its forecast in May closer to $2.4 trillion, but now has the figure at $2.5 trillion, of which 58% will be purchase originations.

But after 2004, volume will take a deep plunge and amount to about half of the record high reached last year. In the 2005-2007 period, MBA reported it expects total originations to average around $1.8 trillion.