Mortgage Rates Hold Steady Amidst Rising House Prices and Strong Demand

Mortgage rates were in flat in the week ending 4^th February, After 2 consecutive weekly declines. 30-year fixed rates held steady at 2.73%.

Compared to this time last year, 30-year fixed rates were down by 72 basis points.

30-year fixed rates were also down by 221 basis points since November 2018’s last peak of 4.94%.

Economic Data from the Week

Through the 1^st half of the week, economic data from the U.S was on the busier side. Key stats included the market’s preferred ISM private sector PMI numbers and ADP nonfarm employment change figures.

The stats were skewed to the positive in the week.

While the ISM Manufacturing PMI slipped from 60.7 to 58.7, the ISM Non-Manufacturing PMI rose from 57.7 to 58.7.

Service sector activity remains key to the U.S economic growth prospects. While lockdown measures in Europe and beyond have adversely affected the sector, it has been a different story in the U.S.

From elsewhere, economic data from China had a relatively muted impact on yields in the week. This was in spite of private sector activity slowing at the start of the year.

Freddie Mac Rates

The weekly average rates for new mortgages as of 4^th February were quoted by Freddie Mac to be:

• 30-year fixed rates held steady at 2.73% in the week. This time last year, rates had stood at 3.45%. The average fee remained steady at 0.7 points.

• 15-year fixed rates rose by 1 basis point to 2.21% in the week. Rates were down by 76 basis points from 2.97% a year ago. The average fee remained unchanged at 0.6 points.

• 5-year fixed rates fell by 2 basis points 3.78%. Rates were down by 54 points from 3.32% a year ago. The average fee remained unchanged at 0.3 points.

According to Freddie Mac,

• Mortgage rates remained flat and near record lows, signifying an economy that continues to struggle.
• This rate environment is advantageous for those who are looking to refinance in order to strengthen their financial position.
• While many have refinanced, the evidence suggests that upper income borrowers have taken greater advantage of the opportunity.

Mortgage Bankers’ Association Rates

For the week ending 29^th January, the rates were:

• Average interest rates for 30-year fixed to conforming loan balances decreased from 2.95% to 2.92%. Points remained unchanged at 0.32 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA increased from 2.88% to 2.94%. Points fell from 0.34 to 0.29 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 3.17% to 3.12%. Points increased from 0.31 to 0.32 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, increased by 8.1% in the week ending 29^th January. In the week prior, the index had fallen by 4.1%.

The Refinance Index jumped by 11% and was 59% higher the had same week one year ago. The index had fallen by 5% in the previous week.

In the week ending 29^th January, the refinance share of mortgage activity rose from 70.7% to 71.4%. The share had fallen from 72.3% to 70.7% of total applications in the week prior.

According to the MBA,

• After 3 consecutive weekly rises, the 30-year fixed rate fell by 3 basis points, supported in upswing in refinance activity.
• The refinance index hit its highest level since March 2020, while purchase activity was unchanged in the week.
• Average purchase loan amounts continued to rise, driven by a strong pace of home sales, tight housing inventories, and high home-price growth.

For the week ahead

It’s a quieter first half of the week on the U.S economic calendar. Economic data includes December JOLT’s job openings and January inflation figures.

Following some disappointing nonfarm payroll numbers from last week, Capitol Hill will need to deliver a stimulus package to support Treasury yields.

Further progress but a lack of deliver on a relief package could see mortgage rates resume a downward trend in the week ending 11^th February.