Rates, Apps Up

Departing from a six-consecutive-week decline, the 30-year fixed-rate mortgage average rose 2 basis points from last week to 6.12%, according to Freddie Mac’s Primary Mortgage Market Survey announced today.

“The miniscule rise in mortgage rates this week most likely reflects market expectations that the Federal Reserve … will once again raise rates next week,” explained Frank Nothaft, Freddie chief economist, in a written statement. “At the beginning of last week, financial markets priced in a 90 percent probability that the Fed would increase short-term rates. Today, the odds are statistically certain.”

The Mortgage Bankers Association’s latest long-term mortgage finance forecast has the 30-year averaging 6.3% through midyear, at 6.4% thereafter until falling back to 6.3% at year-end 2007, and all the way down to 6.0% by the third quarter 2008 before starting upward again.

The mortgage “experts” surveyed by Bankrate.com suggested that prospects lock their rates, as no one in the panel of 100 believe rates will decrease over the next 30 to 45 days, but 60% foresee a rise and the remaining 40% expect them to remain unchanged.

Up 3 BPS from a week ago, Freddie said the average for the 15-year came in at 5.70%.

Last year at this time, the reported spread between the 30-year and 15-year average was 10 BPS wider than the current 0.42% spread.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage average remained at 5.75% this week, Freddie said.

The 1-year Treasury-indexed ARM average reportedly ticked up 2 BPS to 5.20% this week, Freddie reported. The 1-year Treasury bill yield itself jumped 9 BPS from 1 week prior to 4.51% Wednesday, the Federal Reserve said.

MBA predicts that the 1-year ARM will stay at its current average this quarter and end the year at 5.5%, where it will remain until it begins descending in the fourth quarter 2007.

ARMs currently comprise 30% of total mortgage applications, MBA said.

Overall application volume improved from the prior week, as has been the case for three consecutive weeks now. The latest application activity upturn of nearly 8% reflects a 7% increase in demand for purchase money and an 8% boost in refinance requests. The refinance share, however, slipped from the prior week to 43% of total applications, MBA reported.

MBA expects purchase originations to total a record $1.49 trillion for 2005 and refinances to drop about 12% to make up the remainder of the projected $2.79 trillion total mortgage production — slightly above 2004’s level of $2.77 trillion.

For 2006, MBA predicts total volume will drop 20% as rising mortgage rates will shrink refinance originations by about 40%, and “a modest projected decline in home sales this year and still-healthy home price appreciation” will contribute to a 3% decrease in purchase fundings.