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Purchase Activity Lowest in Nearly a Decade

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The number of new loan prospects for home purchases fell to the lowest level in nearly a decade despite declining mortgage rates.

The average 30-year fixed-rate mortgage dropped 7 basis points from the prior week to 4.91% in Freddie Mac’s Primary Mortgage Market Survey for the week ended Nov. 12. The 30-year was 6.14% a year ago. Freddie predicted in its November 2009 Economic and Housing Market Outlook that the 30-year will average 5.0% this quarter then rise to 5.3% in the first-quarter of next year.

Down a more moderate 4 BPS from seven days earlier, the average 15-year fixed-rate mortgage was 4.36%, Freddie said.

The 10-year Treasury yield was 3.466% during trading today, according to data from WSJ.com. The U.S. Department of the Treasury reported that the 10-year yield closed a week ago at 3.57%. The 10-year’s movement suggests mortgage rates could ease slightly in Freddie’s next survey — barring any big market movements.

A plurality of Bankrate.com panelists predicted mortgage rates will rise at least 3 BPS during the next 35 to 45 days, according to the survey for the week Nov. 12 to Nov. 18. No change was expected by 45%, and just 9% projected a decline.

The five-year Treasury-indexed hybrid adjustable-rate mortgage slipped 6 BPS from last week to 4.29%, according to Freddie’s survey.

But the one-year Treasury-indexed ARM averaged just 0.01% less than last week at 4.46%. The one-year is still 87 BPS better than the same week in 2008. Freddie projected the one-year will average 4.6% in the fourth quarter then edge up to 4.7% the following quarter.

The one-year ARM’s underlying index, the yield on the one-year Treasury bill, closed at 0.33 % Tuesday, according to Treasury data. Last Thursday, the one-year Treasury yielded 0.36%.

The London Interbank Offered Rate, a widely used index for subprime ARMs, was 0.54% yesterday, Bankrate.com reported. LIBOR fell from 0.56% a week earlier.

ARM share fell to 5.5% in the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Nov. 6 from 6.1% in the prior survey. Freddie expects ARM share to come in at 4% this quarter and in the first-quarter 2010.

Overall loan applications climbed 3% on a seasonally adjusted basis in MBA’s survey — which lags Freddie’s data by one week. Refinance applications were 11 % higher, while the refinance share rose to 72% from two-thirds a week prior. Freddie predicted refinances will account for nearly two-thirds of fourth-quarter applications then taper off to 60% the next quarter.

Purchase applications were down 14% in MBA’s survey — to the lowest level since December 2000.

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