Mortgage Rates Up and MBA Issues Long Term Forecast

By: Jann Swanson •

Both long and short term interest rates were up again during the week ended January 11 according to Freddie Mac's Primary Mortgage Market Survey. None of the rate increases were dramatic, but all products are now up at least 10 basis points from recent lows reached during the week of December 7, 2006.

The 30-year fixed-rate mortgage (FRM) averaged 6.21 percent in the latest week, up from 6.18 percent during the week ended January 4. Points were unchanged at 0.4. Last year at this time the same product averaged 6.15 percent.

The 15-year FRM increased from 5.94 to 5.96 percent week-to-week with points again unchanged at 0.4. In the same week one year ago the 15-year averaged 5.71 percent.

The five-year Treasury indexed hybrid adjustable rate mortgage (ARM) averaged 6.03 percent and 0.5 point; only a slight change from the average 6.02 percent the previous week but one-quarter point higher than a year ago The one-year Treasury-indexed ARM had an average contract interest rate of 5.44 percent with 0.5 point compared to 5.42 percent. One year ago the one-year ARM averaged 5.15 percent. Points for both the 5/1 and the 1-year mortgages were unchanged from the week of January 4.

The Mortgage Bankers Association reported similar results for their survey week ending January 12. The average contract interest rate for the 30-year FRM increased 6 basis points to 6.19 percent with points, including the origination fee, increasing to 0.98 from 0.94.

The rate for 15-year FRMs moved from 5.85 to 5.92 percent with points up 0.01 to 0.99 from the week ended January 5.

One-year ARM rates increased to 5.85 percent from 5.79, with points decreasing to 0.81 from 0.83.
Mortgage activity declined slightly on a seasonally adjusted basis; down a mere 0.6 percent from the previous week. However, on an unadjusted basis the Market Composite Index was 28.9 percent higher than the week before and 9.8 percent above the same week in 2006.
Refinancing continued to play a major role in mortgage activity representing 49.9 percent of total mortgage applications compared to 48.4 percent a week earlier. ARMs were also a little more popular; 21.2 percent of all mortgage applications were for adjustable mortgages compared to 20.1 percent during the week ended January 5.

MBA also released its economic forecasts for the next three years. These projections did not differ substantially from those set out last week by Freddie Mac, however, here is a summary of the report.

  • Real GDP growth will average about 3.0 percent in 2007, 3.3 percent in 2008 and 3.4 percent in 2009.
  • Fixed mortgage rates are expected to rise to about 6.5 percent by the end of 2007 and to remain around that level through the forecast period.
  • Existing-home sales will decline by about 7 percent and new home sales 8 percent relative to 2006. Both categories are projected to rebound in 2008 by about 3 percent and a further 1 percent in 2009.
  • Existing home price appreciation will slow significantly over the next three years. Median prices for both new and existing homes should remain relatively flat next year and rise about 2 percent in 2008 and 2009.
  • Purchase mortgage originations will reach $1.33 trillion in 2007 and remain flat in 2008. Refinance loans will total $1.06 trillion in 2007 and then decline to $957 billion in 2008. Purchase originations should edge up slightly the next year while refi originations should decline to about $800 billon.
  • Total residential mortgage production in 2007 will be $2.39 trillion, declining by about 5 percent from an estimated $2.51 trillion in 2006. Total mortgage originations are expected to decline an additional 4 percent to $2.29 trillion in 2008 and drop another 6 percent to $2.15 trillion in 2009.