Mortgage rates moved back towards record low levels this week as the Federal Open Market Committee announced further mortgage-backed securities purchases intended to keep mortgage rates at low levels.
Freddie Mac's Weekly Primary Mortgage Market Survey reported a 2 basis point decrease in the average weekly rate for 30-year fixed-rate mortgages. At 3.32 percent, the weekly average rate is 1 basis point from its 2012 record low.
The 15-year FRM fell 1 basis point from last week to an average weekly rate of 2.66 percent. At 2.66 percent, the weekly average rate remains 3 basis points above its 2012 record low of 2.63 percent.
The market's lower rates helped to improve mortgage application activity. The Mortgage Bankers Association's Weekly Mortgage Applications Survey reported a 6.2 percent increase in the number of weekly mortgage applications. Refinancing applications also increased 8 percent for the week, according to the Survey, keeping the refinancing share of mortgage applications high at 84 percent. Additionally, the MBA's Purchase Index component was also higher, improving 1 percent.
In other mortgage market news, Freddie Mac released its December 2012 U.S. Economic and Housing Market Outlook which outlined projections for 2013. The report highlighted the likelihood that mortgage rates would remain low and housing prices would continue appreciating, two main drivers for the housing market's improvement in 2012.
Freddie Mac's December Outlook estimated long-term rates would remain at current levels in the first quarter of 2013, averaging 3.4 percent. Further market improvements and reduced MBS purchases by the Federal Reserve near the end of 2013 could push rates up slightly but not above 4 percent, according to Freddie Mac's estimates.
Housing prices are also expected to continue improving in 2013, according to Freddie Mac. Year-to-date through September the Freddie Mac House Price Index has increased 6.8 percent. The GSE estimates an additional increase of 2.5 percent in its HPI for 2013.
Freddie Mac's December Outlook attributed housing value improvements in the sector to the reduction in distressed inventory. According to the Outlook, the number of homes seriously delinquent or in foreclosure was down 600,000 from last year. Additionally, REO and short sales accounted for only 21 percent of the market's third quarter sales, returning to third quarter 2008 levels.
Overall, the U.S. housing market appears on track to continue trending towards a full recovery in 2017. The FOMC's announcement this week to continue buying mortgage-backed securities in order to keep borrowing rates low should continue aiding potential homebuyers and further reinforce Freddie Mac's growth estimates for 2013.