Falling Rates May Linger At Current Levels
August 19, 2002
Apps decline even as rates reach new lows
By Sam Garcia
Mortgage rates continued their tumble to record low territory and may linger there for a while. At the same time, mortgage application activity -- which usually strengthens as rates decline -- fell off moderately.
The popular 30-year fixed rate averaged 6.22% this week, according to Freddie Mac. This was 0.09% -- or nine basis points (BPS) -- lower than last week and the lowest the rate has been since Freddie began surveying lenders 32 years ago.
Freddie's chief economist, Frank Nothaft, said "the Fed's acknowledgment of weakness in the economy and a flight to quality in the bond market caused fixed-rate mortgage rates to slide further."
The average 15-year fixed rate fell six BPS to 5.63% -- its lowest point since Freddie began tracking the yield in 1991. While the spread between the 15-year and the 30-year fell from last week's whopping 0.62%, it still is a healthy 59 BPS.
Freddie said the average 1-year adjustable rate mortgage (ARM) edged up two BPS to 4.39%. The spread between the ARM and the 30-year, which had been as wide as 2.14% in April, fell to 1.83%. Reflecting the narrowing spread, ARM activity fell to 16.5% of total applications, down from nearly nineteen percent last month, according to the Mortgage Bankers Association of America (MBA).
Rates are likely to rest at their current low levels through the end of the year. Phil Colling, an economist at MBA, said "we do not expect a significant rise in interest rates until economic growth accelerates."
Frank Nothaft said that Freddie forecasts fluctuating mortgage rates that "will remain at near record levels for the rest of the year."
Even as rates continued their descent to record territory, loan applications fell more than five percent from the prior week, according to MBA's survey of mortgage bankers, commercial banks and thrifts.
Near midday, the 10-year Treasury was down 24/32 to yield 4.27%, according to lioninc.com. Last Friday, the midday yield was reported at 4.31%.
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