A banking crisis in a small European island nation helped lop off nearly 10 basis points from long-term U.S. fixed mortgage rates this week.
The 30-year fixed-rate mortgage averaged 3.54 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended March 21. Thirty-year rates were 9 BPS lower than last week and 54 BPS better than the same week in 2012.
Freddie Mac Chief Economist Frank Nothaft suggested that “low and stable inflation” was the main culprit behind the decline in mortgage rates.
But a more likely cause for this week’s improvement was market anxiety over a bailout in Cyprus. The country’s parliament has thus far rejected a bailout plan from the European Union that would tax bank deposits. As investor concern grows over Europe’s woes, many investors turn to the safe have of U.S. Treasuries — driving yields down in the process.
Mortgage rates won’t likely move much from their current levels by the time Freddie issues its next report, according to a Mortgage Daily analysis of Treasury market activity. During the days that Freddie surveyed lenders for this week’s report, the yield on the 10-year Treasury note averaged 1.95 percent — the same as it closed at Thursday based on Treasury Department data.
Panelists surveyed by Bankrate.com for the week March 21 to March 27 offered little insight into which direction rates might move over the next week or so, with 44 percent predicting rates will fall at least 3 BPS and another 44 percent forecasting no change. Just 12 percent forecasted an increase.
The Federal Reserve said Wednesday that its Federal Open Market Committee plans to keep rates low at least as long as the unemployment rate remains higher than 6.5 percent.
The Fed projects that unemployment will stay above 6.5 percent through at least this year and possible into 2015.
Freddie predicts that 30-year fixed rates will average 3.5 percent this quarter and rise 10 BPS each quarter until the first-quarter 2014.
Jumbo mortgages were priced at an 18-basis-ponit premium over conforming loans in the U.S. Mortgage Market Index report from Optimal Blue and Mortgage Daily for the week ended March 15, wider than the 17-basis-pont spread in the previous report.
A 7-basis-point drop from the week ended March 14 left 15-year fixed rates averaging 2.72 percent in Freddie’s survey. Shorter-term loans were less attractive this week, with the discount for a 15-year mortgage falling to 82 BPS from a spread of 84 BPS last week.
Freddie reported average five-year, Treasury-indexed, hybrid, adjustable-rate mortgages at 2.61 percent, the same as seven days earlier.
The one-year Treasury-indexed ARM averaged 2.63 percent, a basis point below the previous report and 21 BPS better than the week ended March 22, 2012.
Freddie projects that the one year will average 2.6 percent each of the first three quarters of this year.
The yield on the one-year Treasury note, which serves as the index for one-year ARMs, slipped to 0.14 percent today from 0.15 percent last Thursday, according to Treasury Department data.
The six-month London Interbank Offered Rate, which is also used to determine rate and payment adjustments on ARMs, was 0.45 percent as of Wednesday, Bankrate.com reported. LIBOR was unchanged from a week earlier.
ARM share in the latest Mortgage Market Index report widened to 5.1 percent from 4.5 percent the prior week.
ARM share is forecasted by Freddie to be 10 percent in the first quarter then widen by 1 percentage point each quarter through the middle of 2014.