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Record Low Rates Have Further to Fall

Rates

Fixed mortgage rates — which are already at the lowest levels on record — are still falling, according to one market indicator. And while low interest rates have yet to attract more homebuyers to the market, an increase in traffic has been noted with existing borrowers who are seizing upon a rare refinance opportunity. Meanwhile, over the next year, a growing share of borrowers are projected to choose loans with variable rates.

It was another record low for the average 30-year fixed-rate mortgage, which fell to 4.42 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended Thursday. The 30-year had already fallen to 4.44 percent last week — the lowest level on record since the survey began in 1971. During the same week last year, the 30-year averaged 5.12 percent.

An August forecast from Fannie Mae — which like Freddie purchases home mortgages from lenders then manages them for investors — has the 30-year averaging 4.5 percent during the current quarter and through the first-quarter 2011. The 30-year is expected to reach 5 percent no earlier than 2012.

Fixed rates are likely to be even lower next week based on the 10-year Treasury yield, which was trading at 2.568 percent today compared to 2.74 percent at last Thursday’s close, according to data reported by the U.S. Department of the Treasury and WSJ.com. The 10-year price, which moves in the opposite direction the yield, was up 20/32 during trading today following a disappointing employment report.

But only 6 percent of the Bankrate.com panelists for the week Aug. 19 to Aug. 25 see mortgage rates falling at least three BPS over the next week. The rest were evenly split over whether rates would rise or stagnate.

The jumbo 30-year mortgage averaged 5.200 percent in the Mortech-MortgageDaily.com Mortgage Market Index report for the week ended Aug. 18, down from 5.260 percent the prior Wednesday. A smaller decline, 0.035 percent, in the conventional 30-year to 4.320 percent helped trim the spread between jumbo and conventional loans to 88 BPS from last week’s 91 BPS.

Like the average 30-year, Freddie said the average 15-year fixed-rate mortgage was down 2 basis points from last week to 3.90 percent. The 15-year survey began in 1991, and this week was the lowest 15-year rate recorded.

At 3.56 percent, there was no weekly change in Freddie’s survey for the five-year Treasury-indexed hybrid adjustable-rate mortgage. The five-year remains at the lowest level since Freddie began tracking it in 2005.

There was also no change in the one-year Treasury-indexed ARM, which was 3.53 percent this week. But 52 weeks earlier, the one-year averaged 4.69 percent. Fannie forecasts the one-year to average 3.7 percent this quarter, 3.6 percent in the fourth quarter and stay within that range through the third quarter of next year.

The yield on the one-year Treasury bill, the index for the one-year ARM, closed yesterday at 0.25 percent, the same as seven days earlier, the Treasury data indicated. The six-month London Interbank Offered Rate, an index for many subprime ARMs, was 0.58 percent yesterday, down from 0.62 percent the previous Wednesday, Bankrate.com reported.

ARMs accounted for 5.7 percent of applications in the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Aug. 13, less than the previous week’s 5.9 percent.

ARM share will ease to 5.9 percent from the second quarter’s 6.0 percent, Fannie said. But ARM share jumps to 7.2 percent in the fourth quarter then keeps climbing through the end of next year to 12.2 percent.

New mortgage activity was up for the third consecutive week based on the Mortgage Market Index, which moved to 350 from 325 last week. The index reflects new loan activity at mortgage brokers this week.

The MBA’s report, which reflects last week’s application activity for mortgage bankers, showed applications rising 13 percent on a seasonally adjusted basis from the prior week — with refinances rising 17 percent to the highest level since the week ended May 15, 2009. Purchase activity, however was down 3 percent.

The average U.S. loan amount in the Mortgage Market Index report fell to $215,694 from $216,618 in last week’s report. Washington, D.C., continued to have a higher average loan amount than all 50 states: $289,201. South Dakota’s $149,909 was the lowest average.

Refinance share was 64 percent in the Mortech-MortgageDaily.com report, higher than 62 percent a week ago. This week’s proportion factored in a 49 percent rate-term share and a 15 percent cashout share.

Fannie projects refinances will account for 63 percent of U.S. third quarter’s originations, jumping from the prior period’s 54 percent. But refinance share is expected to fall below a third by the third-quarter 2011.

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