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Mortgage Rates Jump But Could Retreat

Rates

Strong economic reports this week pushed mortgage rates higher. But Treasury market activity suggests that most of the increase could be wiped out in the next report.

A nine-basis-point rise from last week left fixed-rate 30-year mortgages averaging 3.51 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended May 16. Compared to the same week last year, 30-year mortgages have fallen 28 BPS.

Pushing rates higher were stronger consumer spending and increased retail sales, Freddie Mac Chief Economist Frank Nothaft said in the report.

Thirty-year mortgages are likely to be around 7 BPS better in the next report from Freddie based on a Mortgage Daily analysis of this week’s Treasury market activity.

Data from the Department of the Treasury indicate that the yield on the benchmark 10-year Treasury note averaged 1.94 percent during the days that Freddie surveyed lenders for this week’ report. The 10-year yield closed Thursday at 1.87 percent.

Panelists surveyed by Bankrate.com for the week May 16 to May 22 see it differently, with a majority predicting that rates won’t move more than 2 BPS over the next week or so. Another 38 percent forecasted a rise, while just 8 percent see lower rates ahead.

Freddie predicts that the 30 year will average 3.4 percent this quarter, 3.5 percent in the third quarter and 3.7 percent in the fourth quarter.

In the U.S. Mortgage Market Index report from LoanSifter and Mortgage Daily for the week ended May 10, jumbo mortgages were priced at 31 BPS over their conforming counterparts. The conforming-jumbo spread was down from 33 BPS one week prior.

Freddie reported the 15-year fixed-rate mortgage at 2.69 percent, 8 BPS worse than the average in the previous report. Borrowers who opted for a shorter term had a rate that was discounted an average of 82 BPS over 30-year borrowers. The spread widened from 81 BPS last week.

At 2.62 percent in Freddie’s survey, the average five-year, Treasury-indexed, hybrid, adjustable-rate mortgage was 4 BPS worse the in the previous report.

One-year Treasury-indexed ARMs averaged 2.52 percent, according to Freddie, 2 BPS higher than in the week ended May 9 and 23 BPS lower than the week ended May 17, 2012.

In Freddie’s latest forecast, the one-year ARM is projected to average 2.5 percent in both the second and third quarters then ascend to 2.6 percent in the final three-month period of 2013.

One-year ARMs adjust based on the yield on the one-year Treasury note, which increased to 0.12 percent Thursday from 0.11 percent one week prior, according to Treasury Department data.

Another ARM index, the six-month London Interbank Offered Rate, slipped to 0.42 percent Wednesday from 0.43 percent seven days prior, according to Bankrate.com.

ARM share drifted down to 4.2 percent in the latest Mortgage Market Index report from the previous week’s 4.5 percent.

Freddie forecast ARM share of 9 percent in the second quarter. ARM share is then expected to rise one percentage point each quarter though the fourth-quarter 2014.

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