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Mortgage Rates Dip But Look to Be Headed Higher

Rates

Interest rates on home loans were lower for the second consecutive week, but the outlook is for an ongoing increase.

Freddie Mac reported in its Primary Mortgage Market Survey for the week ended July 25 that 30-year fixed-rate mortgages averaged 4.31 percent.

Rates fell from 4.37 percent the prior week and were down for the second week in a row. But the 30 year was higher than 3.49 percent in the same week last year.

Thirty-year mortgages are likely to be roughly 6 basis points worse in Freddie’s next report, according to a Mortgage Daily analysis of Treasury market activity.

At 2.61 percent as of the market’s close on Thursday, the 10-year Treasury note yield was up 6 BPS from its average for the period that Freddie surveyed primary lenders for this week’s report, according to data reported by the Department of the Treasury Department.

But no change in mortgage rates was predicted by a majority of panelists surveyed by Bankrate.com for the week July 25 to July 31. An increase of at least 3 BPS was forecasted by 36 percent, and just 9 percent projected that rates won’t move.

Fannie Mae predicted in its Housing Forecast: July 2013 that 30-year mortgages will average 4.5 percent in the current quarter then increase to 4.7 percent in the fourth quarter. Fannie expects 30-year mortgage rates will continue climbing — reaching 5.1 percent by the end of next year.

The Mortgage Bankers Association’s 30-year rate projection is 4.4 percent for the third quarter is 4.7 percent for the fourth quarter and 4.8 percent for the entire first half of next year.

Prospective jumbo borrowers were quoted interest rates that were 24 BPS higher than conventional rates in the U.S. Mortgage Market Index report from LoanSifter and Mortgage Daily for the week ended July 19.

Fifteen-year fixed rates averaged 3.39 percent in Freddie’s survey, 2 BPS better than in the week ended July 18. But 15-year mortgages were less attractive this week, with 15-year rates priced 92 BPS lower than 30-year loans, not as good as the 96-basis-point spread in the last report.

A single-basis-point drop from Freddie’s previous report left the five-year, Treasury-indexed, hybrid, adjustable-rate mortgage at 3.16 percent. Fannie predicted that hybrid ARMs will average 3.2 in the third quarter then rise 20 BPS each quarter through the third-quarter 2014.

Also dropping one basis point was the average Treasury-indexed one-year ARM, which averaged 2.65 percent in Freddie’s latest survey. The one-year ARM averaged 2.71 percent in the week ended July 26, 2012.

The one-year ARM is expected by Fannie to average 2.7 percent in the third quarter then rise 20 BPS each of the following three quarters.

The yield on the one-year Treasury note, which is used to determine rate and payment changes on one-year ARMs, inched up to 0.12 percent Thursday from 0.11 percent seven days earlier, according to the Treasury Department data.

But there was no change from last week for the six-month London Interbank Offered Rate, or LIBOR, which was 0.40 percent as of Wednesday, according to Bankrate.com.

ARM share was 9.4 percent in the latest Mortgage Market Index report, off from the prior week’s 9.6 percent.

Fannie projects that ARMs will account for 8 percent of overall business from the third quarter until the first quarter of next year.

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