Rates to Hold

Within the past week, the average 30-year fixed-rate mortgage average decreased five basis points (BPS) to 5.64%, according to Freddie Mac’s latest survey of 125 thrifts, commercial banks and mortgage-lending companies.

Falling by six BPS was the 15-year fixed rate at 5.01%.

Last year at this time, 30-year was about 40 BPS higher, Freddie said, but the 1-year Treasury-indexed adjustable-rate mortgage (ARM) was 20 BPS lower.

The 1-year ARM, which Freddie reported fell 6 BPS from last week to 3.96%, is expected to end next year at 4.8% and the following year at 5.3%, MBA forecasts.

At the recent Mortgage Bankers Association (MBA) annual convention and expo in San Francisco, the trade group’s chief economist, Doug Duncan, said the 30-year will remain below 6% until the second quarter 2005 and end that year at 6.5%, mainly because the 10-year Treasury yield will hold below 5.0%. As it rises above this level, it will push the 30-year to 6.8% by the end of 2006.

At Thursday’s market close, the 10-year Treasury note traded at a 4.05% yield and price of 101 18/32.

As rates rise, MBA said economic growth will slow by about 1% in the next two years from the expected rate of 4.4% in 2004, but job growth of about 400,000 per quarter over that time will sustain the mortgage market by helping maintain purchase volume near this year’s record level of $1.48 trillion. This year’s anticipated purchase share of 55% will increase throughout 2007, according to the forecast.

As purchase transactions grow, the refinance share of originations is expected to tumble from 45% this year to 26% by 2006.

Half of the panel of mortgage bankers, brokers and other individuals surveyed weekly by Bankrate.com predicted rates will rise over the next six weeks, a quarter of the panelists anticipated a fall and the other quarter believed they’ll remain about the same.

Mortgage loan application activity, as reflected in the Market Composite Index, barely edged down from the previous week to 703.9, MBAs latest application survey showed. The index is higher than its level of 649.6 a year ago.

The 4% week to week increase in refinance requests, as demonstrated by the Refinance Index, was offset by a fallout of about the same amount in purchase application activity.

The refinance share of mortgage activity increased nearly 2% in the past seven days to nearly 48%, MBA reported, and the ARM share edged up closer to 35%.