Worse Employment Means Better Rates

The 30-year fixed-rate mortgage average came in at 5.74% — 8 basis points (BPS) below last week’s average — and the 15-year fell 10 BPS to 5.14%, according to Freddie Mac’s latest survey of 125 thrifts, commercial banks and mortgage-lending companies. As for the 1-year Treasury-indexed adjustable-rate mortgage (ARM), the average fell 7 BPS to 4.01%.

“The decline in mortgage rates was primarily due to a weak employment report for September, which suggested economic growth is still a bit subdued,” Freddie chief economist Frank Nothaft said in a prepared statement. “As a result, we expect mortgage rates will continue to stay quite affordable over the next few months, benefiting future homebuyers.“

The surveyed panel of mortgage brokers, bankers and other individuals at Bankrate.com is in the same train of thought; half predicted mortgage rates will stay about the same over the next 45 days, about one-third voted for a downturn and the remaining 16% believed rates will rise.

Less-than-expected job gains offset the recent upward revision of economic growth, which shot mortgage rates upward last week as it led the financial market to believe the economy was very well on its way to recovery and inflation was at bay. Nothaft refuted that belief saying that as “of late, there has been no compelling economic reason to believe mortgage rates would climb out of their recent range.”

Despite rates below 6% last week, many mortgage hunters refrained from applying for a home loan; the Market Composite Index was off 9% to 658.2 for the week ending Oct. 8, according to the Mortgage Bankers Association (MBA). The index, however, is almost unchanged its level of 649.6 a year ago when the 30-year was 21 BPS above its current figure.

Mortgage application fallout was primarily affected by less people requesting a refinance — the Refinance Index sunk by 14%, MBA said, while the Purchase Index only decreased 5%.

The refinance share of total mortgage applications reportedly edged down from the previous week to about 45%.

MBA said the ARM share of mortgage applications has edged up for three consecutive weeks to 35% — very close to its May peak when the spread between the 30-year and 1-year ARM average had widened to 2.54%.

However, Freddie’s Nothaft pointed out that “ARMs may lose some appeal amongst homeowners in the coming months” if the spread between fixed-rate mortgages and ARMs, currently at 1.73%, continues closing in.

Near midday Friday, the 10-year Treasury note had a price of 101 17/32 and a 4.05% yield, compared to 4.24% at the market’s close a week ago.