6.5% By 2005 – Fixed rates, apps ease

The averages for both the 30-year fixed-rate mortgage at 5.68% and the 15-year at 5.11% slipped three basis points within the past seven days, according to Freddie Mac’s latest survey of 125 thrifts, commercial banks, and mortgage-lending companies. Last year at this time, the 30-year was 20 BPS higher.

But, fixed rates are heading higher, according to the Bond Market Association’s economic advisory committee. In its year-end economic outlook, the group said the “median forecasts for the 30-year fixed-rate mortgage have the rate rising from 5.8 percent to 6.2 percent at midyear and 6.5 percent by the end of 2005.”

The group added that “there is a strong consensus view that the flattening of the 2-year to 10-year yield curve will continue” through 2005.

While the 10-year Treasury-note was trading at a 4.20% yield early Friday and price of 100 11/32, the Bond Market Association expects the yield to rise at a “steady though moderate rate” to 4.5% by the end of March, then to 5.1% by the end of 2005.

The 1-year Treasury-indexed adjustable-rate mortgage average edged up three BPS from last week to 4.18%, Freddie said. A year ago, it was about 40 BPS lower.

The uptick reported in the ARM follows an increase in the federal funds rate target by the Federal Open Market Committee’s of a quarter percentage to 2.25%, according to a Fed announcement Tuesday. The Bond Market Association said it sees the Fed continuing its measured policy of quarter percentage increases bringing the short-term interest rate to 3.50% by the end of next year.

In line with the economic advisory’s forecast, half (50%) of Bankrate.com’s surveyed panel of 100 industry bankers, brokers and individuals, predicted mortgage rates will rise over the next month and half, while roughly one-third believe they’ll remain about the same. For the first time in quite a while, a portion of Bankrate.com’s panel (17%) expect a downturn.

Overall mortgage applications, as measured by the Market Composite Index, edged down 1% from the previous week — with the index easing to 689.0, according to the Mortgage Bankers Association’s latest Weekly Mortgage Applications Survey. Refinance activity nudged down 2% and purchase money requests were virtually unchanged.

At 46%, the share of applications for refinance was almost unchanged, while the ARM share slipped to 34%, MBA said.