Mortgage rates declined yet again in the results of the Primary Mortgage Market Survey for the week ended December 7. Freddie Mac reported that the 30-year fixed-rate mortgage reached the second lowest point of the year at 6.11 percent with an average 0.5 point. This was a drop of 3 basis points from the previous week and was only higher than the 6.10 percent rate for the week of January 19.

The 15 year FRM averaged 5.84 percent with 0.5 point. The week ending November 30 the 15-year averaged 5.87 percent and one year ago it was at 5.87 percent as well.



The five-year Treasury-indexed hybrid adjustable rate mortgage (ARM) carried an interest rate of 5.92 percent with 0.5 point. This was a drop of 3 basis points since the previous week and again represented an inversion of the yield curve as it was 8 basis points higher than the 15-year fixed

One-year Treasury-indexed ARMS carried an average rate of 5.43 percent with an average 0.7 point, down from 5.46 percent the previous week. This is the lowest this product has been since March 23 when it averaged 5.41 percent but substantially higher than the 5.15 percent of one year ago.

"Continued signs of slowing in the housing market and weakness in the manufacturing sector helped keep mortgage rates down this week," said Frank Nothaft, Freddie Mac vice president and chief economist. "Looking forward in the housing market, we think that housing is about 2/3 of the way through the correction, and should stabilize by mid-year 2007."

The Mortgage Bankers Association, however, saw most rates heading in the opposite direction. Its Weekly Mortgage Applications Survey for the week ending December 8 reported that the average contract interest rate for 30-year fixed-rate mortgages increased to 6.02 from 5.98 percent, with points, including the origination fee, increasing to 1 from 0.91.

15-year FRMs carried an average interest rate of 5.75 for the week, up from 5.66 percent a week earlier. Points decreased to 1.01 to 1.

The one-year ARM, however, bucked the MBA trend, decreasing to 5.76 percent from 5.79 although points increased to 0.81 from 0.77. This was the lowest level for the one-year ARM since March.

There was good news for lenders. Mortgage application volume increased 11.4 percent on a seasonally adjusted basis from one week earlier and 10.2 percent when unadjusted. The Market Composite Index which measures this volume was up 22.2 percent compared to the same week one year earlier. This represented the highest level of activity for the Market Index since October 2005.

MBA's Senior Economist Mike Fratantoni said that the 80 basis points plus drop in mortgage rates since summer has led to a significant increase in refinance activity and "additionally, we are seeing a steady increase in purchase applications."

In fact, the refinance share of mortgage activity increased to 52.6 percent of total applications from 50.1 percent the previous week, the highest level for refinancing since April 2004. The ARM share of activity increased to 24.9 from 23.9 percent of total applications from the previous week.

The Federal Reserve voted on Tuesday to leave the federal funds interest rate unchanged. While this decision does not directly affect mortgage rates, it will probably result in them remaining near their recent lows over the short term.