As fixed mortgage rates jumped and loan applications fell, the one-year adjustable-rate mortgage improved by 8 basis points. The sudden widening in the spread between fixed rates and the one-year ARM is likely to lead a bigger share of new borrowers to consider the ARM option.
In its Primary Mortgage Market Survey for the week ended Oct. 22, Freddie Mac said the average 30-year fixed-rate mortgage jumped to 5.00% from the prior week’s 4.92%. But the 30-year remains 104 basis points better than a year ago.
The average 15-year fixed-rate mortgage climbed 6 BPS from last week to 4.43%, Freddie said.
The yield on the 10-year Treasury was 3.413% during trading today, better than 3.45% at the close of the market last Wednesday based on data from the U.S. Department of the Treasury. The slight decline suggests mortgage rates might do the same.
But despite the signal the 10-year is sending, more than half of the panelists surveyed by Bankrate.com for the week Oct. 22 to Oct. 28 predicted rates will rise at least 3 BPS over the next 35 to 45 days. One-third saw no changes ahead, while 12% predicted a decline.
Up just 2 BPS from the prior week, the five-year Treasury-indexed hybrid ARM averaged 4.40% in Freddie’s survey.
Bucking the trend, the one-year Treasury-indexed ARM declined 6 BPS to average 4.54% in Freddie’s report. A year earlier, the one-year averaged 5.23%.
The yield on the one-year Treasury bill, the underlying index for the one-year ARM, increased to 0.40% yesterday from 0.35% a week ago. Another ARM index, the six-month London Interbank Offered Rate, was 0.59% yesterday, according to Bankrate.com. LIBOR was 0.60% a week earlier.
The share of mortgage shoppers who applied for ARMs crept up to 6.4% from the prior week’s 6.2% in the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Oct. 16. The share is likely to rise even further given this week’s 14 BPS widening of the spread between the one-year ARM and the 30-year fixed rate mortgage.
Overall loan applications fell 14% from a week earlier on an seasonally adjusted basis in MBA’s survey. Refinance applications fell 17%, pushing the refinance share down to 65% from the previous week’s 67%. Purchase applications were down 8%.