Mortgage Rates Tumbling

The 30-year fixed-rate mortgage average stepped down 3 basis points from last week to 6.40%, according to Freddie Mac’s latest Primary Mortgage Market Survey. Last year at this time, the average was 0.60% lower.

The 15-year came in at 6.06%, or 5 BPS below the level a week ago, Freddie reported.

A benchmark for fixed mortgage rates, the yield on the 10-year Treasury note, was 4.65% in late trading, off 8 BPS from Wednesday and down nearly 15 BPS from seven days ago.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage average reportedly slipped 2 BPS to 6.08% this week.

The largest weekly decrease — 6 BPS to 5.54% — was with the average 1-year Treasury-indexed ARM, Freddie reported. The gauge for these mortgages, the 1-year T-bill, edged down 3 BPS over a week to 4.99% Tuesday, according to Federal Reserve data.

The Federal Open Market Committee announced on Wednesday it decided to again keep the target for the federal funds rate at 5.25%.

“The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market,” the Fed said in a statement. “Inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.”

Freddie Chief Economist Frank Nothaft noted that data indicating new home starts dropped to a three-year low in August and that inflation is leveling off “have helped to lower mortgage rates lately and keep them more affordable.”

“Going forward, the economy is expected to expand at a somewhat slower rate than it did in the first half of the year,” Nothaft added. “This should continue to keep inflation in check, and therefore, mortgage rates low.”

Only one-fifth of the 100 mortgage “expert” panelists surveyed by Bankrate.com believed mortgage rates will rise over the next 30 to 45 days, the rest were evenly split among those who forecasted a downturn and those who expected rates to remain relatively unchanged.

The Mortgage Bankers Association sees the 30-year averaging 6.5% this quarter and 10 BPS lower next quarter. While the estimates are 0.10% higher than what Freddie predicts for the respective periods, the forecasts coincide in that rates will head down in the fourth quarter.

A 10% surge from the previous week in refinance requests overshadowed a 3 percent decrease in purchase money loan demand and made overall mortgage application volume improve — by 2% this time around — for the third week in a row, MBA said on Wednesday.

Accordingly, the refinance share of mortgage activity increased to nearly 44% of total applications from 40% a week earlier, MBA reported. Meanwhile, the ARM share of activity grew from the prior week to 27%.