Attractiveness Of 1-Year ARM May Start Waning

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The yield curve continued to flatten out, with short-term mortgage rates moving ever closer to long-term rates, Freddie Mac said.

The average for the benchmark 30-year, fixed-rate mortgage rose to 6.37% its highest in two years, from 6.36% the week before; while the average for the 15-year, fixed-rate loan increased to 5.90%, from 5.89%. ARMs also continued to climb to two-year highs, with the average for the one-year hitting 5.20%, from 5.12% earlier this month; and the average for the five-year ARM moving to 5.86%, from 5.81%.

The compression of rates-the so-called flattening of the yield curve-comes as the Fed continues to push short-term rates higher. "Recently released inflation indicators - the Consumer Price Index and Producer Price Index-brought down long-term bond yields, flattening out the yield curve," said Frank Nothaft, chief economist for Freddie Mac. "The difference between the 30-year fixed-rate mortgage and the one-year ARM rate is the narrowest it has been since November of 2001. This will make the one-year ARM product much less attractive to borrowers."

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