Mortgage Activity Worsens

May 28, 2004

Rates edge up, apps down

By Coco Salazar

As rates continue to climb, mortgage applications continue to fall. Those looking for direction may have to wait awhile.

The 30-year fixed-rate mortgage averaged 6.32%, up two basis points (BPS) from last week, according to Freddie Mac's latest survey of 125 thrifts, commercial banks and mortgage lending companies. The average is a full point over that of 5.31% a year earlier.

The 15-year also went up two BPS from last week to 5.69%, the secondary lender said.

While long-term rates edged up, Freddie said the 1-year Treasury-indexed adjustable-rate mortgage (ARM) average fell 12 BPS from last week to 3.87%. ARMs comprised over a third -- 34.6% -- of total applications for the week ending May 21, down from the previous week's share of 35.2%, the Mortgage Bankers Association of America (MBA) reported.

Employment data was better than expected in recent months and was a main factor influencing the direction of mortgage rates.

While volatile oil prices have recently been making their mark on worries of inflation and rising interest rates, MBAs chief economist Doug Duncan said oil prices are much less important today then in the 70s. Gas prices are low when looked at historically and the dollar is adjusted to 1970 levels. "Oil prices would have to stay very high for several months (6 or more) before they may drive interest rates up marginally -- it is a much smaller concern in terms of impact on inflation," he added.

The 10-year Treasury note, which acts as a benchmark for long-term interest rates, closed Thursday at a 4.60% yield and price of 101 5/32. A week ago, the note closed at a 4.70% yield and price of 100 11/32.

Those surveyed by this week indicated mortgage rates will remain stabilized over the next month and a half; 42% voted that rates will stay about the same (plus or minus 2 BPS), 29% believed rates will drop and the other 29% predicted an upturn.

The Market Composite Index, or measure of mortgage application activity for both refinancing and purchasing, fell 3.3% from the previous week to 632.4 on a seasonally adjusted basis in MBAs latest Weekly Mortgage Applications Survey. The index is way below the level of 1634.6 a year ago.

In line with forecasts that refinance mortgage originations will end up at much lower levels than last year's record, the Refinance Index, or measure of refinance activity, continued its downward path, dropping 6.7% from the previous week to 1694.9, MBA reported. Meanwhile, the refinance share of mortgage activity decreased to 36.2% of total applications from the previous week's 37.4%. Last year at this time, the Refinance Index was at 8840.9 and the refinance share was 77.1%.

The Purchase Index slipped 1.0% from the previous week to 449.8, the Washington, D.C.-based trade group said. Purchase mortgage originations are expected to reach a record $1.4 trillion at the year's end.


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