Mortgage Rates at 2.5 Year Low

Mortgage rates continued to fall during the week ended January 17 according to the results of the Primary Mortgage Market Survey released by Freddie Mac and, in the case of 30 and 15-year fixed rate mortgages (FRMs) reached the lowest level since July 2005.

The 30-year FRM averaged 5.69 percent, down 18 basis points from the previous week. Fees and points increased from 0.4 to 0.5. One year ago the 30-year had an average rate of 6.23 percent.

The 15-year FRM dropped from 5.43 percent to 5.21 percent with points unchanged at 0.4. One year ago the 15-year averaged 5.98 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.40 percent this week, with an average 0.6 point, down from last week when it averaged 5.63 percent with 0.5 point. A year ago, the 5-year ARM had an average rate of 6.04 percent.

The one-year ARM was at an average of 5.26 percent this week with 0.6 point, compared to the previous week's average of 5.37 percent and 0.4 point. At this time last year a typical 1-year ARM had an initial rate of 5.51 percent.

Frank Nothaft, Freddie Mac vice president and chief economist stated, "The latest retail sales report indicated that shoppers scaled back spending in December, as retail sales declined by 0.4 percent from November's level. Particularly weak were sales of building materials, garden equipment and supply stores, which fell by 2.9 percent from the previous month. The declines aggravated concerns about the well being of the economy and exerted downward pressure on mortgage rates.

"Mortgage rates moved down across loan products for the third consecutive week. Average rates on 30-year fixed-rate mortgages (FRMs) and 15-year FRMs are at their lowest since July 2005. The results from this week's survey mark the first time in seven years that the average rate on the 15-year FRM is lower than the average rate on 1-year adjustable-rate mortgages (ARMs)."

There were similar results from the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ended July 18 with the 15-year FRM breaking through to less than 5 percent for the first time in recent memory.

The average contract interest rate for the 30-year FRM was 5.49 percent with 1.07 points, including the origination fee compared to 5.62 percent with 0.94 points the previous week.

The 15-year fell to 4.96 percent from 5.07 percent although points increased to 1.22 from 1.09.

The one-year ARM may have lost whatever appeal it still had; while it decreased 26 basis points from the previous week, its average rate of 5.51 percent was higher than either of the long-term fixed rate products leaving one to wonder what is the point?

Mortgage application volume was up 8.3 percent on a seasonally adjusted basis from the week before and 11 percent on an unadjusted basis. Applications were an amazing 63.7 percent higher than during the same week in 2007.

Refinancing accounted for 66.0 percent of mortgage applications compared to 62.7 percent a week earlier while ARMs held on to a 9.3 percent market share compared to 9.2 the week before.

"Refinance applications are up 92% since the beginning of November and purchase applications are up 7%. With tighter credit conditions we do not know how many of these applications will become loans, but it is clear that borrowers are responding to the 40-80 basis point drop in rates we have seen since November 2 across products," said Jay Brinkmann, Vice President of Research and Economics at the Mortgage Bankers Association.