While fixed rate mortgage rates declined for the third straight
time in Freddie Mac's Weekly Primary Mortgage Market Survey for the week ending
December 29, they had traveled a modest difference from where they started the
year. Adjustable rate mortgages also declined slightly during the last full
week of the year, but their increase from January 2005 levels was substantial.
First, the weekly report for both Freddie and the Mortgage Bankers Association
Survey for the week ending December 30.
Freddie reported that the 30-year fixed mortgage was down from 6.26 percent
for the week ended December 22 to 6.22 percent with fees and points dropping
0.1 to 0.5. The 15-year declined three basis points to 5.75 percent with fees
unchanged at 0.6. The 5/1 ARM was also off slightly at 5.79 percent, three basis
points lower than the previous week with fees and points down 0.1 to 0.6. The
1-year ARM showed the largest change, dropping from 5.22 percent to 5.15 percent
with fees and points remaining at 0.7.
The Mortgage Bankers Association also reported that most rates declined. The
30-year fixed was off 6 basis points from 6.21 to 6.15 percent. But points,
including the origination fee were way up - at 1.32 from 1.18 for 80 percent
loan to value originations. 15-year fixed mortgages were down slightly from
5.76 to 5.74 percent with points up to 1.25 from 1.20. One-year ARMS, however,
increased to 5.41 percent from 5.36 percent a week earlier. Points edged down
to 0.92 from 0.98.
Mortgage application volume decreased 1.5 percent on a seasonally adjusted
basis which included an additional adjustment for the holiday week. On an unadjusted
basis the Market Composite Index was down 20.8 percent from the previous week
and 9.9 percent compared with the same week one year ago.
Refinance activity went up slightly to 42.7 percent of all activity from 40.2
percent the previous week while the share of mortgage applications attributable
to adjustable rate mortgages decreased to 28.8 percent from 32.5 percent a week
Looking at year-end comparisons, Freddie Mac's figures for the most recent
week are down slightly from the highs of 2005, all of which have occurred in
the last two months. Three of the four rates tracked by Freddie hit the year's
high during the week ended November 17 with the 30-year at 6.37 percent, the
15-year at 5.90 percent, and the 5/1 ARM at 5.86 percent. The 1-year ARM topped
out for the year only one week ago, hitting 5.22 percent for the week ended
While the year has been a rate rollercoaster, the general trend has been two
steps up and one down for most of the year. Fixed rate mortgages did not increase
substantially after all of the ups and downs - the 30-year gained 0.45
since the first week of the year, and the 15-year increased .55. Based on these
average rates the payment on a $200,000 mortgage would have increased from 1,170
(P&I) for the week ended January 6, 2005 to $1,227 by last week for the
30-year and from 1,603 to 1,662 for the 15-year. The increase in payments by
$50 to $60 dollars on these fixed rate products probably has not had a lot of
impact on the plans of most prospective homebuyers or those refinancing existing
However, the two adjustable rate mortgages tracked by Freddie showed substantially
larger increases over the year. The 5/1 hybrid was up three-quarters of a point
since early January and the 1-year climbed more than a full point. This represented
a $95 per month higher payment on our hypothetical $200,000 mortgage -
from $1,077 to $1,172 for a 5/1 and $126 more for the one-year ARM, bringing
that payment to $1,092.
Even more striking is the flattening of the yield curve. Adjustable rate mortgages
have lost much of the advantage they have held over fixed rate products, particularly
for those home buyers or refinancers who are squeezing to qualify for a loan.
The difference between payments on a $200,000 30-year fixed mortgage and a 1-year
ARM dropped from $205 per month in January to $135 last week. One would suspect
that for all but the most cash-pressed, the security of a fixed rate would more
than compensate for the dollar difference.
Rates for the New Year are expected by most analysts to rise
but to do so in a measured way, finishing the year around 6.5 percent for the
30-year fixed. If realized, this would mean a smaller increase this year than
last. The stated intention of the Federal Reserve, according to the minutes
of their December meeting, to sit back for a while before continuing the monthly
rate increases we have seen throughout 2005 may make that 6.5 percent number
very possible; it may at least return ARMs to respectability as short-term rates
take a breather.