U.S Mortgage Bounce as Geopolitical Risk Abates

Weak economic data through the week failed to pin back mortgage rates as easing geopolitical risk drove U.S Treasury yields and mortgage rates.
Bob Mason
Mortgage application loan agreement and house key

Mortgage rates were on the rise in the week ending 17th October. 30-year fixed rates rose by 12 basis points to 3.69%, reversing an 8 basis point fall in the week prior.

In spite of the uptick, 30-year rates held close to levels last seen in early November of 2016, according to figures released by Freddie Mac.

Compared to this time last year, 30-year fixed rates were down by 116 basis points.

More significantly, 30-year fixed rates are down by 125 basis points since last November’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the busier side throughout the week. Key stats included October NY Empire State Manufacturing Index, September retail sales and Philly FED Manufacturing figures.

While manufacturing sector activity picked up in NY State, manufacturing sector activity in Philly saw slower growth in October.

Industrial production fell in September, with retail sales also in decline at the end of the 3rd quarter.

While the stats were skewed to the negative, geopolitical risk eased in the week, driving Treasury yields northwards.

Boris Johnson made progress on the Brexit front, with the EU approving the revised deal.

There was also progress in trade talks between the U.S and China, with a draft trade agreement in the works for the respective heads of state to discuss.

Freddie Mac Rates

The weekly average rates for new mortgages as of 17th October were quoted by Freddie Mac to be:

  • 30-year fixed rates increased by 12 basis points to 3.69% in the week. Rates were down from 4.85% from a year ago. The average fee remained steady at 0.6 points.
  • 15-year fixed rates rose by 10 basis points to 3.15% in the week. Rates were down from 4.26% from a year ago. The average fee held steady at 0.5 points.
  • 5-year fixed rates held steady at 3.35% in the week. Rates were down by 75 basis points from last year’s 4.10%. The average fee increased from 0.3 points to 0.4 points.

According to Freddie Mac, the housing market remains on an upswing, with construction and home sales continuing to improve.

While the manufacturing sector has continued to struggle and trade uncertainty lingers, economic trends such as employment and homebuilder sentiment continue to be positives.

Mortgage Bankers’ Association Rates

For the week ending 11th October, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 3.75% to 3.77%. Points decreased from 0.29 to 0.19 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances rose from 3.90% to 3.91%. Points fell from 0.37 to 0.35 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances held steady at 3.90%. Points fell from 0.28 to 0.23 (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 0.5% in the week ending 11th October. In the week ending 4th October, the Market Composite Index had risen by 5.2%.

The Refinance Index increased by 4% in the week ending 11th October, leaving the index up by 199% from the previous year. The Index had jumped by 10% in the week ending 4th October.

The share of refinance mortgage activity increased from 60.4% to 62.2%, following on from a rise from 58.0% to 60.4% in the week prior.

According to the MBA, Despite a marginal increase in mortgage rates, refinance applications continued to rise. Purchase applications slowed for a 2nd consecutive week, however.

While near-term economic uncertainty continued to influence, other factors, including a lack of housing inventories weighed on purchase activity. In spite of this, purchase activity was still significantly higher than a year ago.

For the week ahead

It’s a relatively busy week on the economic data front.

September’s existing home sales are due out on Tuesday ahead of a busy Thursday. Barring a sizeable jump in sales, we would expect the numbers to have a muted impact on yields and mortgage rates.

Key drivers in the week include September durable goods orders and prelim October private sector PMI numbers due out on Thursday.

While of less influence on the day, September’s new home sales and the weekly jobless claims will also need monitoring.

Through the early part of the week, with economic data on the lighter side, geopolitics will continue to influence.

We can expect market reaction to the latest Parliamentary vote on Brexit and any chatter on trade…

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