Lowest Rates In 15 Months Could Go Lower

The 30-year fixed-rate mortgage came in at 5.53%, drifting down four basis points within the past seven days to the lowest average since the last week of March 2004, according to the Freddie Mac’s latest Primary Mortgage Market Survey released today. Last year at this time, the average stood at 6.21%.

Fannie Mae’s latest outlook has the 30-year stalling — it indicates the average will stay below 5.6% until the second quarter next year.

Two-thirds of the 100 mortgage “experts” surveyed by Bankrate.com this week predicted rates will stay about the same from here until about mid-August, while the rest believed rates will drop over that time.

The average 15-year fixed rate also fell four BPS from last week to 5.12%, Freddie reported.

“With still little or no threat of inflation to be found, long-term mortgage rates this week had some breathing room and that allowed rates to drift a little lower,” said Frank Nothaft, Freddie chief economist, in the announcement. “Short-term rates, though, may be another matter, since the Federal Reserve is expected to continue raising its target for the federal funds rate at least a few more times this year.”

Accordingly, the Federal Open Market Committee today raised its target for the federal funds rate by 25 basis points to 3.25%, saying that “pressures on inflation have stayed elevated, but longer-term inflation expectations remain well contained.”

In an editorial published at Barron’s Online, Cantor Fitzgerald’s team of global economists and market analysts said it expects mortgage rates to head “towards 4% over the next three and a half years — not towards 7%” — citing increased competitive pressures amongst lenders, proliferation of innovative products and improved pricing efficiencies, and moderated consumer inflation pressures next year and beyond.

The 10-year Treasury note traded at a 3.96% yield and 101.28 price Thursday afternoon, almost indifferent from 3.95% and 101.38 at the market’s close a week ago.

Cantor believes the 10-year will likely top out at 4.5% during the next three years — with a possible drop to 3% during the next recession, which it believes will be in four years.

The 5/1 Treasury-indexed hybrid ARM reportedly averaged 5.06%, up just one BPS from last week.

Also up by one BPS was the 1-year Treasury-indexed ARM, which Freddie said averaged 4.24% this week. The index for 1-year ARMs was 3.46% as of Tuesday, up four BPS from a week earlier, the Federal Reserve reported in its Statistical Release.

The ARM share of application activity decreased to 30% the Mortgage Bankers Association reported. The trade group noted that the ARM share trend has mimicked the average 30-year yield — with both falling to their lowest levels in the past 15 months.

Despite falling rates, the overall pace of 1003 submissions continued to slow, according to MBA, as reflected in the 1% decrease from the previous week in the Market Composite Index, a measure of mortgage loan application volume.

Purchase money activity was almost unchanged from the previous week, MBA reported, while refinance requests edged down about 2% and the share of refinance applications edged down closer to 45%.