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Rates Higher, Outlook Mixed

Rates

Mortgage rates jumped, though the country’s central bank has no plans to raise rates any time soon. In forecasting mortgage rates, activity in long-term Treasury bonds points a different direction than the prediction of a panel of professionals. Weekly mortgage activity barely changed, though fewer applicants opted for adjustable rates.

The average 30-year fixed-rate mortgage shot up 13 basis points from the prior week to 4.94% in Freddie Mac’s Primary Mortgage Market Survey for the week ended Dec. 17. Compared to the prior year, the 30-year was 25 BPS better.

The 10-year Treasury Note yield was 3.527% during trading today, according to WSJ.com. The 10-year yield closed at 3.49% last Thursday, U.S. Department of the Treasury data indicated. The movement suggests fixed rates might be lower in next week’s mortgage survey.

But a plurality of panelists surveyed by Bankrate.com for the week Dec. 17 to Dec. 23 predicted mortgage rates would not move more than 2 BPS during the next 35 to 45 days. One-third expected an increase, while just over a quarter projected a decline.

The Federal Reserve’s Open Market Committee yesterday issued a statement giving no indication that it plans to raise the target range for the federal funds rate above the 0.0% to 0.25% now. The Fed said that it “continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends and stable inflation expectations — are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

The central bank noted improvement in economic activity and in the housing sector as well as a decline in the labor market’s deterioration.

Just 6 BPS higher than the previous week, the average 15-year fixed-rate mortgage was 4.38% in Freddie’s survey.

At 4.37%, the five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 11 BPS more than a week earlier, Freddie said.

Freddie reported that the one-year Treasury-indexed ARM averaged 4.34%, 0.10% higher than a week prior but 0.60% better than the same week in 2008. The underlying index, the yield on the one-year Treasury bill, closed yesterday at 0.38%, higher than 0.31% seven days prior.

A widely used index on subprime ARMs, the six-month London Interbank Offered Rate, was 0.45% yesterday, Bankrate.com reported. LIBOR was 0.47% a week earlier.

Despite a surge in fixed rates last week without a corresponding rise in the one-year, ARM share declined to 4.1% in the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Dec. 11 from 4.7% a week earlier.

MBA said total applications nudged up less than 1% on a seasonally adjusted basis from the prior week — with refinances up 1% and purchases off less than 1%. The refinance share edged up to three-quarters.

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