Mortgage Rates Retreat to 5.35%, Offering Hope for More Activity

Long-term mortgage rates this week retreated from their recent climb that has cast a dark cloud over mortgage activity in the months ahead. According to the Inside Mortgage Finance weekly sample of mortgage rates, the average 30-year rate at mid-week was 5.35 percent  or 40 basis points below the 5.75 percent rate seen a week ago.

The fortunes of the mortgage origination market increasingly have been tied to the 10-year Treasury rate, which has climbed along with investor concerns about the debt levels in the U.S. and the potential for increased inflation. But this week’s major economic indicators showed little potential for a hike in inflation. And a two-day drop in the Dow Jones average combined with a rise in the U.S. dollar helped push long-term Treasury rates lower.

Mortgage Rates Climb to 5.75% This Week, Choking Off New Lending

Long-term mortgage rates rose to the highest level seen since last November, a development that is expected to put the brakes on refinance activity as well as home purchase lending. According to the Inside Mortgage Finance weekly sample of mortgage rates, the average 30-year rate at mid-week was 5.75 percent. This was up from 5.29 percent a week ago and the highest level seen since November 28.

Given that most outstanding prime loans carry a rate of 6 to 6.5 percent, there will be little incentive now for borrowers to refinance. Separately, the higher rates  and associated higher monthly payments are likely to dampen home sale activity, which has remained very low this year.

Mortgage Rates Start to Recover from Last Week’s Sharp Jump

Long-term mortgage rates, which jumped more than 50 basis points last week to over 5.25 percent, showed signs of retreating towards 5 percent at midweek. According to the Inside Mortgage Finance weekly sample of mortgage rates, the average 30-year rate was coming in at about 5.125 percent. The government’s heavy purchases of both treasury bonds and agency mortgage securities is expected to push mortgage rates back down to 5 percent or lower in the coming weeks. Back in mid January, long term rates jumped to 5.28 percent and then rose to 5.40 in early February before dropping back to sub-5 percent levels in March and April.

Mortgage Rates Drift Slightly Higher Approaching New Year

After reaching record low levels right before Christmas, 30-year mortgage rates crept back up to slightly over 5 percent this week, according to the Inside Mortgage Finance weekly survey of rates. Today’s average 30-year conforming mortgage rate was 5.09 percent with .4 points. This compared to an average conforming loan rate of 4.84 percent and .5 points  the lowest ever recorded by Inside Mortgage Finance on December 12.

While low mortgage rates have stimulated a lot of refinance applications, it’s unclear what they will do for actual mortgage originations in the weeks and months ahead. Based on October and November mortgage activity, it appears that total originations in the fourth quarter will be down 15-20 percent from the third quarter’s already dismal $300 billion level.

Refi Surge Won’t Keep 4Q08 Origination Activity from Sinking

While declining mortgage rates already are triggering a big surge in refinance applications, that increase won’t come soon enough to help fourth quarter mortgage production. In fact, early indications are that 4Q08 mortgage originations are at the lowest level seen in a decade.

According to a new Inside Mortgage Finance analysis of Ginnie Mae, Fannie Mae and Freddie Mac activity in October, originations appear to be down at least 15 percent in the fourth quarter. Given that third quarter originations were already at a lackluster $300 billion level, it now appears likely that fourth quarter activity will come in at only around $250 billion. But mortgage activity could pick up significantly in early 2009 as mortgage rates continue to fall in December.

The average 30-year fixed mortgage rate was a low 5.375 percent as of midweek, according to Inside Mortgage Finance’s weekly rate survey.