After surging 77 basis points in the previous three weeks, 30-year fixed mortgage rates finally eased off by 21 basis points to 5.38% with an average 0.7 point for the week ending June 18, Freddie Mac reported today.

This places the no-point rate in the mid 5.5% area.

The 15-year fixed mortgage rates declined 17 basis points to 4.89%, five-year hybrid ARMs averaged 4.97% compared to 5.17% last week, and one-year ARM rates were reported at 4.95%, down nine basis points from the previous report.

The slight improvement in mortgage rate levels is expected to help to a limited extent with refinancing activity this week. Yesterday, the Mortgage Bankers Association reported a 23% drop in the Refinance Index to 1998, which is its lowest level since mid-November. The Purchase Index also slipped 3.5% to 261.

Freddie Mac Chief Economist Frank Nothaft noted that the increases in mortgage rates in recent weeks "is starting to slow homebuyer demand, at least temporarily," as affordability has weakened. He also pointed to the recent homebuilder sentiment report which showed weakening in the component on gauging expectations for the next six months.

The higher mortgage rate levels also add to the downward pressure on home prices.  "As a general matter, a 50 basis points change in rates ends up changing home price results by about 300 basis points," Deutsche Bank Securities analysts said. 

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