Thirty-year mortgage rates improved again and now sit at their lowest level in seven months. But all indications are that mortgage rates will increase for the rest of the year.
At 4.14 percent in Freddie Mac’s Primary Mortgage Market Survey for the week ended May 22, thirty-year fixed rates were the lowest they’ve been since the week ended Oct. 31, 2013, when the average was 4.10 percent.
Thirty-year rates averaged 4.20 percent in the previous report, while the average was 3.59 percent in the same week last year.
It was the fourth week in a row that fixed rates moved lower.
Freddie Mac Chief Economist Frank Nothaft noted in the report that rates continued to slide as industrial production slipped 0.6 percent in April, below the market consensus forecast.
In the meeting minutes of the Federal Open Market Committee for April 29 and April 30, the FOMC indicated that it would add to its purchases of agency mortgage-backed securities at a pace of $20 billion a month beginning in May versus the $25 billion level that was in place.
“Members again judged that, if the economy continued to develop as anticipated, the committee would likely reduce the pace of asset purchases in further measured steps at future meetings,” the minutes said. “However, members underscored that the pace of asset purchases was not on a preset course and would remain contingent on the committee’s outlook for the labor market and inflation as well as its assessment.”
Treasury market activity suggests fixed rates could be slightly higher in Freddie’s next report.
The 10-year Treasury yield averaged 2.53 percent during the days that Freddie surveyed primary lenders for this week’s report, according to Treasury Department data. The 10-year yield closed Thursday at 2.56 percent.
Most of the panelists survey by Bankrate.com for the week May 22 to May 29 predicted mortgage rates won’t move more than 2 BPS over the next week. A decline was forecasted by 11 percent, and none saw an increase ahead.
In Freddie’s May 2014 Economic and Housing Market Outlook, 30-year fixed-rates are projected to go from 4.3 percent in the second quarter to 4.4 percent three months later and rise 20 BPS each quarter after that through the end of next year.
Fannie Mae predicted in its Housing Forecast: May 2014 that 30-year rates will average 4.3 percent this quarter then rise to 4.4 percent in the third quarter.
Thirty-year rates are forecasted by the Mortgage Bankers Association to climb from 4.5 percent in the second quarter to 4.9 percent in the third quarter and 5.0 percent in the fourth quarter.
In the week ended May 16, jumbo mortgage rates were 7 BPS better than conforming rates, according to the U.S. Mortgage Market Index report from LoanSifter-Optimal Blue and Mortgage Daily. The jumbo-conforming spread widened from a negative 5 BPS the previous week.
This week’s average 15-year fixed rates were 3.25 percent, improving from 3.29 percent in Freddie’s survey for the week ended May 15. Rates on 15-year mortgages were 89 BPS better than 30-year rates, not as good as the 91-basis-point spread last week.
Freddie said five-year, Treasury-index, hybrid, adjustable-rate mortgages averaged 2.96 percent, 5 BPS better than in the last report.
Freddie’s economic outlook has hybrid ARMs at 3.2 percent this quarter, 3.3 percent in the third quarter and 3.5 percent in the final three-month period of this year.
Fannie sees hybrid ARMs averaging 3.1 percent in the second quarter then rising 10 BPS each quarter until the first quarter of next year.
No change from last week left one-year Treasury-indexed ARMs at 2.43 percent in Freddie’s report. One-year ARMs averaged 2.55 percent in the week ended May 23, 2013.
Freddie predicts that one-year ARMs will go from 2.4 percent during the current quarter to 2.5 percent in the second half.
Fannie has one-year ARMs averaging 2.4 percent in the second quarter then rising 10 BPS each quarter until mid-2015.
Department of the Treasury data indicated that the index for the one-year ARM, the yield on the one-year Treasury note, was 0.09 percent on Thursday, the same as a week earlier.
Another ARM index, the six-month London Interbank Offered Rate, was 0.33 percent as of Wednesday, a basis point more than seven days earlier, according to Bankrate.com.
ARM share was 13.2 percent in the latest Mortgage Market Index report, the same as in the prior report.
ARM share is projected by Freddie to widen from 11 percent in the second quarter to 12 percent three months later and 13 percent in the final quarter of 2014.
In Fannie’s outlook, ARM share is expected to go from 10 percent this quarter to 11 percent in the third quarter then climb to 13 percent each of the following two quarters.
