Mortgage Rates Continue Upward Spiral

Mortgage rates continued to climb last week according to the results of Freddie Mac's Primary Mortgage Market Survey.

The 30-year fixed-rate mortgage (FRM) averaged 6.53 percent with 0.4 point, 11 basis points higher than the average for the week ended May 31. In the five weeks since rates began their current run-up the 30-year FRM has increased 38 basis points to reach the highest level since it averaged 6.55 percent during the week ended August 10.

The 15-year FRM averaged 6.22 percent compared to the previous week when the average was 6.12 percent. Fees and points were unchanged at 0.4. This was the fourth straight week of increases for the 15-year which averaged 5.87 during the week ended May 10. The last time the 15-year was this high was during the week ending August 3 when it averaged 6.27 percent.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) had an average rate of 6.24 percent with 0.6 point, up from last week when it averaged 6.19 percent and 0.5 point. This was also the highest level for the 5/1 ARM since the week ended August 3 when it averaged 6.27 percent.

The one-year Treasury-indexed ARM gained 8 basis points over the previous week's rate of 5.57 percent. Fees and points increased from 0.6 to 0.7. The last time the 1-year was this high was the week of August 10 when it averaged 5.69 percent.

Frank Nothaft, Freddie Mac vice president and chief economist commented about the report, "Mortgage rates climbed this week owing to market concerns of a tight labor force and wage growth. May's unemployment rate remained at the second lowest level since May 2001 while average hourly earnings rose. Additionally, unit labor costs increased 1.8 percent over the first three months of the year, tripling the original estimate, and fueling inflation fears."

"Meanwhile, Freddie Mac released a new purchase-transaction only version of its Conventional Mortgage Home Price Index this week which showed a sharp deceleration in house-price appreciation in the first quarter of 2007. As house prices grow less quickly and household incomes rise, the housing market will likely recover from its current slump, but perhaps not before the end of this year."

Rate increases for fixed-rate products were even more pronounced in the results of the Weekly Mortgage Applications Survey for the week ending June 8 released by the Mortgage Banker's Association.

The average contract interest rate for 30-year FRMs was up 26 basis points to 6.61 percent from a week earlier while points, including the origination fee, were down from 1.5 to 1.44.

The 15-year FRM increased to 6.28 from 6.13 percent with points increasing to 1.39 from 1.2.

However, the rate of the one-year ARM dropped significantly, from 5.74 to 5.48 percent with points increasing to 1.18 from 1.14. This represented the first time in recent memory that the yield curve between the 30-year FRM and the 1-year ARM widened to over one full percent.

Mortgage activity as measured by loan applications increased 6.6 percent on a seasonally adjusted basis and 17.4 percent when unadjusted (the previous week was holiday shortened), and was up 16.1 percent compared with the same week in 2006.

The refinance share of mortgage activity remained unchanged at 38 percent of total applications. The adjustable-rate mortgage (ARM) share of activity increased to 18.7 from 17.8 percent of total applications from the previous week.