The real slap of reality, however, was the 1-year ARM. While at 4.89 percent with 0.7 in fees it was up only slightly from the 4.85 percent and 0.6 in fees the previous week, this was the high water mark since April 2002 when the rates averaged 4.96 percent and 0.7 in fees. At that point the 1-year was on a steady decline from a level of 7.29 percent in August of 2000.

On the other hand, the Mortgage Bankers Association reported a slight decrease for fixed mortgage rate products.

The average contract interest rate for 30-year fixed rate mortgages was down three basis points to 6.06 percent from the previous week and points decreased from 1.29 to 1.21. The 15-year was down five basis points to 5.57 percent while fees, including the origination fee were up 0.1 to 1.30.

MBA, however, also reported a bounce, albeit a small one, for the 1-year ARM. The average contract rate increased to 5.37 percent from 5.34 percent one week earlier, with points remaining at 1.00.

Mortgage application activity was scattered. On a seasonally adjusted basis the rate of applications was down 7.9 percent from a week earlier but, when computed at an unadjusted rate, was up 2.2 percent. As compared to the same week in 2004 activity was down again, 3.7 percent.

Refinancing as a share of all mortgage activity was also down again, now representing 42.5 percent of total applications as compared to 42.8 the previous week. Surprisingly, and in spite rising adjustable rates, the ARM share of the market increased slightly from 29.3 to 29.5 percent.