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Rates Slip, But Heading Higher

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Rates Slip, But Heading HigherApplications edge up

December 10, 2004


Disappointing employment news was good news for mortgage shoppers — with more completing loan applications last week. But the party might not last long as forecasts now have the 30-year at 6% sooner than expected.

The 30-year fixed-rate mortgage average came in at 5.71% and the 15-year at 5.14%, both spiraling down from last week by 10 basis points and 9 BPS, respectively, according to Freddie Mac’s latest Primary Mortgage Market SurveyLast year at this time, the 30-year averaged 6.02%.

“Responding to a weak labor market report that showed November job growth to be far less than had been anticipated, long-term yields — and that includes mortgage rates — reversed last week’s hike and fell to the previous week’s level,” said Freddie chief economist Frank Nothaft in an announcement.

The 10-year Treasury-note was trading at a yield of 4.14% early Friday, off 2 BPS from Thursday. The 10-year price was up 0.21875 to 100 27/32.

The decline was not as dramatic for the 1-year Treasury-indexed adjustable-rate mortgage, which reportedly fell 4 BPS in the past seven days to 4.15%.

“Many other indicators remain strong and this we think will lead the Federal Open Market Committee to raise short-term rates another quarter point to a target of [2.25] percent, putting upward pressure on frequently adjusting ARMs,” Nothaft added.

At, two-thirds of the 100 surveyed mortgage bankers, brokers and other industry participants, predicted mortgage rates will rise over the next month and the remaining one-third believed they’d remain about the same (plus or minus 2 BPS).

In its December outlook, Freddie predicted the 30-year will average 6% next quarter — much sooner and 20 BPS higher than it had previously anticipated. Freddie’s November forecast estimated the average would climb to 6% until the third quarter. The Mortgage Bankers Association’s latest outlook has the 30-year reaching that level by the second quarter.

Mortgage application activity, as measured by the Market Composite Index, edged up 3% from the previous week to 696.2 — higher than the level of 601.6 a year ago, according to the MBAs survey of mortgage bankers, commercial banks and thrifts.

The weekly uptick was mostly due to the 7% increase in purchase money requests as refinancing activity decreased by 1%.

The refinance share of mortgage applications moved below 46%, while the ARM share inched up to nearly 35%.


Coco Salazar is an assistant editor and staff writer for email: [email protected]

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