|Long term rates fell to the lowest level in five months on fear that consumer spending will slow. While the employment report will shed light on the pace economic growth will take and what rates will do this coming week, mortgage activity may also awake from its dormant pace.
Down to their lowest levels since April, the 30-year fixed-rate mortgage average of 5.77% dropped 5 basis points (BPS) within the past week and the 15-year fell by 6 BPS to 5.15%, according to Freddie Mac’s latest survey of 125 thrifts, commercial banks and mortgage lending companies.
The current spread of 62 BPS between the 30-year and 15-year is where it has lingered near during the past month, and is narrower than a year ago at 66 BPS.
As for the 1-year Treasury-indexed adjustable-rate mortgage (ARM), the average sunk 8 BPS to 3.97%. — a level not seen since the last week of May and 9 BPS above its average of 3.88% a year ago, Freddie said.
In a written statement, Freddie chief economist Frank Nothaft attributed the decreased mortgage rates to the news released Tuesday by the Conference Board that said consumer confidence plunged in August after having been on the rise since April. The drop “left an unsavory taste in the market, creating a fear that consumer spending will slow. Because consumer spending constitutes about two-thirds of the economy, this could seriously impact economic growth.”
A director of the Conference Board, Lynn Franco, said caution amongst consumers returned due to a slowdown in jobs, adding that “until the job market and pace of hiring picks up, this cautious attitude will prevail.”
Two sets of data prior to the consumer confidence report also stirred economic concern; the Commerce Department said Monday consumer income increased 0.1% in July — reportedly lower than expected — and before that issued a downwardly revised estimate of overall economic growth in the second quarter.
The August employment figures “will shed more light on the future financial strength or weakness of families. And that strength or weakness is a large part of what will drive the pace of the nation’s economic growth,” Nothaft added.
The near-term direction of mortgage rates also hinges on the employment report numbers. However, the consensus still points for an upward movement in the long run. In a conference call Monday, Nothaft and David Seiders, chief economist for the National Association of Home Builders, both predicted the 30-year will average around 6.4% by the end of this year.
The surveyed mortgage industry panel at Bankrate.com also predicts prospective homebuyers will not be locking in rates lower than the ones currently in place; 50% of the panel believes mortgage rates will increase over the next month and a half, 33% predict a downturn, and the rest (17%) think rates will stay about the same.
This week’s lower rates may boost mortgage application activity in the next Weekly Mortgage Applications Survey by the Mortgage Bankers Association (MBA), but so far the latest data (for the week ending Aug. 27) showed that mortgage activity barely budged from the prior week — with the Market Composite Index slipping 0.6% to 642.7.
Refinance applications fell 1.1%, MBA said, while purchase money applications edged down 0.1%.
The refinance share of total mortgage applications reportedly nudged up to 40.7% and the ARM share increased to 33.1%.
The 10-year Treasury-note closed Thursday with a yield of 4.21% and a price of 100 8/32.
Coco Salazar is an assistant editor and staff writer for MortgageDaily.com.