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Mortgage Rates Surge But Could Fall Back

Rates

A stronger than expected employment report helped drive fixed rates higher — though a retreat is likely by the next report. Fifteen-year loans became much more attractive this week.

Freddie Mac reported in its Primary Mortgage Market Survey for the week ended Nov. 14 that 30-year fixed rates averaged 4.35 percent, surging from 4.16 percent in the prior report.

Fixed interest rates on 30-year mortgages now stand 101 basis points higher than they did a year earlier.

“Fixed mortgage rates increased this week following stronger than expected economic data releases,” Frank Nothaft, chief economist for Freddie Mac, said in the report. “Nonfarm payrolls increased by 204,000 in October, above the consensus forecast. In addition, revisions added 60,000 additional jobs to the prior two month releases.”

Nothaft additionally noted that preliminary estimates indicated that growth in real gross domestic product grew at 2.8 percent in the third quarter, also above estimates.

Despite the positive economic news, Treasury yields have since settled back, and mortgage rates could be around 9 BPS better by the next report based on Mortgage Daily’s analysis of Treasury market activity.

During the period that Freddie surveyed primary lenders this week, the 10-year Treasury note yield averaged 2.78 percent, according to Treasury Department data. But the yield tumbled to just 2.69 percent Thursday.

Half the panelists surveyed by Bankrate.com for the week Nov. 14 to Nov. 20, however, expect that mortgage rates won’t move more than 2 BPS over the next week or so. A decline was projected by 30 percent, and a fifth predicted an increase.

Lawrence Yun, chief economist for the National Association of Realtors, predicts mortgage rates will finish next year at 5.4 percent.

Rates on jumbo mortgages were priced at a 26-basis-pont premium over conforming rates in the U.S. Mortgage Market Index report from LoanSifter and Mortgage Daily for the week ended Nov. 8. The jumbo-conforming spread was cut from 30 BPS one week prior.

Fifteen-year fixed rates didn’t move as much as 30-year rates in Freddie’s survey, averaging 3.35 percent this week versus 3.27 percent a week earlier. The more moderate movement for shorter-term loans boosted the spread between 15- and 30-year loans to 100 BPS from 89 BPS in the week ended Nov. 7 — making shorter term loan far more attractive.

A 5-basis-point rise from the previous week left five-year, Treasury-indexed, hybrid, adjustable-rate mortgages averaging 3.01 percent in Freddie’s report.

One-year Treasury-indexed ARMs averaged 2.61 percent, according to Freddie, the same as last week. But one-year ARMs averaged 6 BPS more than in the week ended Nov. 15, 2012.

The one-year Treasury yield, which is used to determine rate and payment adjustments on one-year ARMs, rose to 0.13 percent Thursday from 0.11 percent seven days earlier, according to Department of the Treasury data.

An index used for many subprime ARMs, the six-month London Interbank Offered Rate, was 0.35 percent as of Wednesday, Bankrate.com reported. LIBOR was unchanged from the previous Wednesday.

ARM share widened to 10.8 percent in the latest Mortgage Market Index report from the prior week’s 10.4 percent.

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