“Concern over weaker consumer confidence and industrial production outweighed the pick-up in retail sales and business inventories causing interest rates to decline even further this week,” said Freddie’s chief economist, Frank Nothaft. “Adding to the decline was a flight-to-quality in the bond market from nervous investors worried about falling stock prices and the possibility of war in the Middle East.”

The average 15-year fell twelve BPS, Freddie said, to 5.47%. Freddie started tracking the 15-year in 1991, and this is the lowest it has been during that period. The 15-year is 58 BPS better than the 30-year, down from 59 BPS last week.

Fixed rates may head lower, according to Bankrate.com. The majority of mortgage bankers, mortgage brokers and other industry experts it surveyed expect for mortgage rates to head lower during the next five weeks. “Whether it is possible conflict with Iraq or earnings confessions, there are many issues hanging over investors’ heads,” said Bankrate.com’s financial analyst. “Consequently, demand for 10-year Treasury notes has pushed yields as low as 3.8 percent — with mortgage rates to approach 6 percent as a result.”

Freddie reported the average 1-year adjustable rate mortgage (ARM) at 4.28%, down 4 BPS from last week — its lowest point since 1994. The 1-year is about 1 3/4% lower than the 30-year fixed rate mortgage. ARM activity edged up to 12.5% of total applications from 12.3% last week, according to the Mortgage Bankers Association of America (MBA).

MBA, which surveys mortgage bankers, commercial banks and thrifts, reported that loan applications eased slightly from record levels — falling 8.7% from last week. Refinance applications were down nearly eight percent while purchase activity was down 11%. Refinance applications represented 73.6% of total activity.

Freddie’s Nothaft added that record low fixed rates will ensure “that the refinancing boom will continue.”

Near midday today, the 10-year Treasury Note was down 6/32 to yield 3.80%, according to Lioninc.com. Last Friday, the morning yield was reported at 3.94 percent.