Mortgage rates eased back from their recent lows as Treasurys sold off beginning late last week. This was after the market experienced a strong flight to safety gains and news broke out on Monday that the Treasury will begin selling its MBS holdings.  

For the week ending March 24, 30-year fixed mortgage rates increased five basis points from last week to 4.81% with an average 0.7 point, according to Freddie Mac.

The GSE also reported that 15-year fixed rates averaged 4.04% compared to 3.97%, 5/1 hybrid ARMs increased to 3.62% from 3.57%, and one-year ARMs rose four basis points to 3.21%.

While rates are still historically attractive, mortgage application activity remains generally unresponsive as many borrowers are unable to refinance due to credit-impairment, higher costs associated with refinancing, tight credit conditions, and a still limited jobs market. 

For the week ending March 18, the Mortgage Bankers Association's Refinance Index increased just 2.7% to ~2471 despite mortgage rates dropping to 4.76% from 4.88%, its lowest level since mid-January and down 29 basis points from a recent higher of 5.05% in the week ending February 10.

Purchase activity has also been muted. This is because, aside from the tight credit standards, there are ongoing appraisal issues while home valuations remain adversely impacted by the sizeable amount of distressed homes. This has also been keeping buyers hesitant. 

Steady improvement in the labor market will allow for growth in household formation that would benefit the housing market. This will also help reduce the inventory of distressed homes and stem further declines in home prices. 

At the moment, however, the outlook is not particularly rosy with 30-year mortgage rates currently estimated to average 5.5% by 4Q11 and be over 6% by the end of 2012. Meanwhile, home prices are projected to experience further declines of around 3% to 5%.

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