U.S Mortgage Rates – Down for the 1st Time in 10-weeks

That was quite a week for the financial markets and prospective home buyers will have some mixed feelings going into next week.

February Inflation figures released on Tuesday provided little evidence of a pickup in inflationary pressure, easing market panic over the prospects of a more aggressive FED, while yields slid through the week, as U.S President Trump wielded the axe, the latest victim being Rex Tillerson. Appointments of replacements for both Cohn and Tillerson raised some eyebrows and, while macroeconomic data released through the week was skewed to the positive, demand for Treasuries rose through the week, leaving 10-year Treasury yields at 2.84% by the end of the week, down 5 percentage points from the previous Friday’s 2.89% and U.S equity markets in the red again.

The effects of soft wage growth may be offset by the tax reform bill and a pause in the rise in mortgage rates may be positive, but with February’s building permits and housing starts falling by 5.7% and 7% respectively, inventory shortages are unlikely to reverse anytime soon.

Prelim March consumer sentiment figures, released on Friday continued to sit at 14-year highs, supported by a tight labor market, but the survey also revealed concerns of a fall in household income and a pickup in inflationary pressures, the combination of which would lead to even more home buyers being priced out of the market.

Freddie Mac rates for new mortgages last week were quoted to be:

• 30-year fixed rates loan fell from 4.46% to 4.44% last week, while up from 4.30% a year ago.
• 15-year fixed rates fell from 3.93% to 3.90%, while up from 3.50% from a year ago.
• 5-year fixed rates stand at 3.67%, up from the previous week’s 3.63% and from last year’s 3.28%.

Average interest rates for 30-year fixed, backed by the FHA increased from 4.68% to 4.73%, the highest level since Jul-11, while the average interest rate for 30-year fixed with conforming loan balances increased from 4.65% to 4.69%, the highest level since January 2014. 30-year rates for jumbo loan balances in contrast, continued to fall, down from 4.56% to 4.55%.

Refinancing rates are currently as follows:

• 30-year fixed to refinance rates slipped from 4.31% to 4.27%,
• 15-year fixed to refinance rates were down from 3.72% to 3.68%.
• 10-year fixed to refinance rates fell from 3.66% to 3.60%.

With 30-year fixed mortgage rates easing for the 1^st time in 10-weeks, mortgage applications continued to rise in the week ending 9th March, up by 0.9% on an adjusted basis, according to the Mortgage Bankers’ Association, following the previous week’s 0.3% increase.

After the rise in refinance applications in the week ending 2^nd March, refinance applications fell by 2% in the week ending 9^th March. Refinance mortgage applications accounted for 40.1% of total applications in the week, which was down from the previous week’s 41.8%, to the lowest level since Sep-08.

With affordability continuing to be a key issue for those looking to buy new homes, the latest fall in mortgage rates may ultimately provide little comfort when considering the housing sector data that was released out of the U.S on Friday.

Supply and demand imbalances have continued to pressure house prices upwards and, while mortgage rates on an upward trend, the refinance mortgage numbers suggest that further declines in refinance mortgage are likely, while new mortgage applications will likely continue to rise near-term, though much will depend on the pace of the increase in mortgage rates and of course, how house prices and mortgage rates are impacted by a possible shift in monetary policy expectations.

The continued rise in new mortgage applications supports the negative outlook from an inventory prospective, which will continue to push home prices higher, until such time that new mortgage applications take a sizeable fall and begin to raise concerns of a slowdown in the real estate market.

This week’s FED monetary policy decision and the release of the FOMC’s economic projections, which coincide with new FED Chair Jerome Powell’s first policy press conference will also be of significant importance.

The FED Funds Futures have the probability of a rate hike in the coming week at 91.6%. Recent inflation and wage growth figures have led to expectations of a 4^th rate hike being lowered, though there has been little commentary to counter or support the market’s view.

As we saw last week, it’s not just going to be down to the economic data or FED monetary policy and the economic projections in the coming week, with U.S President Trump’s reshuffling of his cabinet that has involved the ousting of key senior members of the administration, also a factor, alongside any further talk of punitive trade tariffs on China and other trade partners.