As market anxiety over European economies subsided, mortgage rates surged. Some signs point to a continued rise in rates. The latest mortgage forecast has the share of borrowers choosing adjustable rates increasing through the end of next year.
The average 30-year fixed-rate mortgage jumped 15 BPS to 4.61 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended Thursday. The 30-year, which was 4.81 percent a year ago, is expected to average just 4.5 percent in the first quarter of next year.
“After Europe made strides in its debt situation, investors left the security of U.S. Treasury debt causing bond yields to rise and mortgage rates along with them,” Freddie’s chief economist, Frank Nothaft, explained of this week’s activity in the report.
Market data from the Treasury Department indicate that the yield on the benchmark 10-year Treasury closed today at 3.23 percent, jumping 22 BPS from last Thursday’s close. The activity suggests rates might be a little higher in next week’s reports.
Mortgage rates will be higher next week based on an overwhelming majority of panelists surveyed by Bankrate.com for the week Dec. 9 to Dec. 15. A decline of at least 3 BPS was forecasted by 13 percent, and just 7 percent expected no change.
The spread between the jumbo 30-year fixed-rate mortgage and the conforming 30-year fell to 75 BPS in the Mortech-Mortgage Daily Mortgage Market Index report for the week ended Dec. 9 from 82 BPS a week ago.
Freddie reported that the average 15-year fixed-rate mortgage rose to 3.96 percent from 3.81 percent last week.
Also higher was the five-year Treasury-indexed adjustable-rate mortgage, which Freddie said averaged 3.60 percent versus 3.49 percent seven days earlier.
The one-year Treasury-indexed ARM, meanwhile, rose 2 BPS from last week to average 3.27 percent in Freddie’s weekly report. Freddie has the one-year ARM at 3.4 percent during the first three months of next year. The ARM’s index, the yield on the one-year Treasury, climbed to 0.30 percent Thursday from 0.29 percent a week earlier.
Subprime borrowers whose ARM index is the six-month London Interbank Offered Rate were not disappointed this week as the LIBORÂ was unmoved from a week earlier at 0.46 percent Wednesday, according to data reported by Bankrate.com.
Borrowers chose ARMs on 5.6 percent of the applications tracked in the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Dec. 3, lower than 5.7 percent the previous week.
Based on closed loans, Freddie has ARMs accounting for 6 percent of fourth-quarter volume then climbing to 10 percent by the end of next year.
New mortgage activity was up 38 percent based on the Mortgage Market Index, which climbed to 260 from 188 last Thursday. The increase reflects a surge of originators rushing to price loans as rates climbed.
Refinance share was 56 percent in the latest Mortech-Mortgage Daily report, higher than half last week. The rate-term share was 40 percent, and the cashout share was 16 percent.
Freddie predicts that the refinance share of applications will fall from 77 percent this quarter to 65 in the first-quarter 2011. By the end of next year, the ratio is expected to plummet to just over a third.
