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ARM Rates Continue to Slide

Inflation fears are holding fixed-rate mortgage rates steady, while those on adjustable-rate mortgages continued to slide, according to Freddie Mac's (FRE) mortgage-market survey.

Still, while fixed rates have varied only one basis point from the previous week, they are much lower than year-ago levels. A basis point is 1/100th of a percent.

Rates for 30-year fixed mortgages (FRMs) averaged 6.09%, with an average 0.6 point for the week ending June 5, according to Freddie Mac. That represents a very slight increase from the previous week's 6.08%. A year ago, 30-year FRMs averaged 6.53%.

Rates for 15-year FRMs averaged 5.65% with an average 0.6 point, down a bit from last week's 5.66%. A year earlier the rate was at an average 6.22%.

Five-year hybrid adjustable-rate mortgages (ARMs) that are indexed to Treasury bills averaged 5.51% this week, with an average 0.5 point, down from last week when they averaged 5.62%. A year ago, the five-year ARM averaged 6.24%.

One-year Treasury-indexed ARMs averaged 5.06% this week with an average 0.7 point, down from last week's 5.22%. At this time last year, the one-year ARM averaged 5.65%.

"Interest rates for fixed-rate mortgages were nearly unchanged this week over reports of continued inflation," said Frank Nothaft, Freddie Mac vice president and chief economist. He noted that while gross domestic product rose faster than initially reported during the first quarter, consumer spending posted the smallest increase since the 2001 recession.

Mortgage rates tend to follow the movement of inflation, though the outlook is unclear at the moment. Prices have risen sharply in the U.S., partially because the dollar has become weak relative to other currencies. The dollar tends to decline along with the Federal Reserve's interest rate target, which it has cut repeatedly since September in an effort to lower the cost of borrowing.

That target is now at 2% -- roughly half the rate of inflation, which is at the highest level in nearly two years.

Some economists and observers say the Fed's next likely move will be to hike rates to tame inflation, though that depends on the market's movements and consumer prices. Fed Chairman Ben Bernanke indicated on Tuesday that the agency will likely hold off on cutting its interest rate target any further, saying, "For now, policy seems well positioned to promote moderate growth and price stability over time."

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