Rate Rally Short-Lived

Freddie Mac reported the average 30-year loan at 5.95%, an increase of 18 basis points (BPS) from the prior week. At the same time last year, it averaged 5.98%, according to the Primary Mortgage Market Survey.

The average 15-year fixed rate mortgage increased 16 BPS to 5.26%, Freddie said.

Falling 3 BPS, the average 1-year Treasury-indexed adjustable-rate mortgage came in at 3.69%, according to Freddie. The ARM share of activity decreased by less than one percent to 22.7, reported the Mortgage Bankers Association of America (MBA).

Overall mortgage applications increased 15.6%, bringing the Market Composite Index to 817.3, the MBA said in its Weekly Mortgage Applications Survey. In the same week last year, applications broke a record with 1317.0.

According to MBA reports, borrowers refinanced their applications nearly 20% more this week, with the Refinance Index coming in at 3005.5. A year ago, the index stood at 6926.9 — the highest-ever level at that point. The refinance share of mortgage activity edged up by about two percent to 55.0.

“Long-term interest rates fell during September and last week hit their lowest levels since mid-July,” said MBA president of research and economics Jay Brinkmann in the announcement. “Borrowers obviously responded to mortgage rates that dropped below 6 percent with a 20 percent increase in refinance applications.“

MBA reported the Government Index increased almost 17 percent from the previous week to 265.7.

The 10-year Treasury-note yield closed Thursday 12 BPS higher than reported last week at 4.29%. The price lowered from 100 19/32 last week to 99 21/32.

Freddie Mac’s chief economist Frank Nothaft said more than 100,000 new jobs in the economy gathered from August’s revised figures and September, boosted the market. He added “the latest economic indicators point toward a vigorous acceleration in economic growth in the second half of 2003 with job gains during the fourth quarter.”

“Freddie Mac economists expect the economy will grow about four percent in 2004, but since inflation will remain very low, mortgage rates should average somewhere just above six percent to 6.25 percent over the next year,” added Nothaft.

“While concerns still remain that growth will put pressure on rates, we believe that the thirty-year fixed rate mortgage will average near 6.0% through year-end. A relatively volatile rate environment may well characterize the period of the fourth quarter. Our forecast has the 10-year Treasury yield averaging 4.1% during the fourth quarter,” the report said.

According to Freddie’s website, originations will reach a record $3.26 trillion by the end of the year, while the refinance share of new loan applications is expected to drop more than one-third next year and the ARM share is expected to rise to about one-quarter.

Bankrate.com reported 28% of its mortgage industry panelists expect rates to decrease, and although 36% expected no change and 36% expected an upturn, the publication advised people to lock on loans for chance of a slight rise.