U.S Mortgage Rates – Another Record Low and Sub-3%

Mortgage rates hit yet another record low and more importantly fell to sub-3% for the 1^st time in the week ending 16^th July. The weekly decline came off the back of a 4 basis point fall to a previous record low in the week prior.

30-Year fixed rates fell by 5 basis points to an all-time low 2.98%. In the previous week, 30-year fixed rates had fallen by 4 basis points to 3.03%.

Compared to this time last year, 30-year fixed rates were down by 83 basis points.

30-year fixed rates were also down by 196 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the busier side through the 1^st half of the week.

Key stats included June inflation and industrial production and July’s NY State manufacturing figures.

The stats had a muted impact on the global financial markets, however, as COVID-19 continued to drive risk sentiment.

Fresh highs across some of the most populous states in the U.S led to containment measures being introduced in California.

More states could follow should the number of new cases continue to rise. While this was certainly negative for U.S Treasury yields, progress towards a COVID-19 vaccine eased the pain.

On Thursday, the weekly jobless claims disappointed, as did a mixed set of numbers out of China. Economic data from China failed to deliver riskier assets with a boost, in spite of a rebound in growth. Weak consumer spending figures suggested that consumption-driven growth may be unreliable.

Freddie Mac Rates

The weekly average rates for new mortgages as of 16^th July were quoted by Freddie Mac to be:

• 30-year fixed rates fell by 5 basis points to 2.98% in the week. Rates were down from 3.81% from a year ago. The average fee fell from 0.8 points to 0.7 points.

• 15-year fixed decreased by 3 basis points to 2.48% in the week. Year-on-year, rates were down from 3.23%. The average fee declined from 0.8 points to 0.7 points.

• 5-year fixed rates rose by 4 basis points to 3.06% in the week. Rates were down by 42 points from last year’s 3.48%. The average fee remained unchanged at 0.3 points.

According to Freddie Mac,

• Mortgage rates fell below 3% for the 1^st time in 50-years, leading to increased homebuyer demand.
• The countervailing force for the economy has been the rise in new virus cases, which has caused the economic recovery to stagnate.
• This economic pause puts many temporary layoffs at risk of ossifying into permanent job losses.

Mortgage Bankers’ Association Rates

For the week ending 10^th July, rates were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.31to 3.24%. Points rose from 0.24 to 0.29 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances declined from 3.26% to 3.19%. Points fell from 0.35 to 0.33 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 3.52% to 3.53. Points decreased from 0.36 to 0.29 (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 5.1% in the week ending 10^th July. In the week prior, the index had increased by 2.2%.

The Refinance Index increased by 12% from the previous week and was 107% higher than the same week a year ago. The Index had risen by 0.4% fin the previous week.

The refinance share of mortgage activity increased from 60.1 to 64.2% in the week ending 10^th July. In the week prior, the share had slipped from 61.2% to 60.1% of total applications.

According to the MBA:

• Mortgage rates declined to another record low and were 63 basis points lower than the recent high in March.
• Refinance activity jumped to the highest level in a month as a result of the drop.
• Purchase applications fell over the week but remained 15% higher than a year ago. This marked an 8^th consecutive week of year-on-year increases.
• Purchase activity remained relatively strong despite the continued economic uncertainty and high unemployment.

For the week ahead

It’s a particularly quiet 1^st half of the week for the Greenback.

There are no material stats due out of the U.S until Thursday’s weekly jobless claims figures. The lack of stats will leave U.S Treasury yields in the hands of COVID-19 news and geopolitics.

On the COVID-19 front, the markets will be looking for more progress towards a COVID-19 vaccine.

While COVID-19 will be the key driver, tensions between the U.S and China continue to linger. Any escalation from the war of words will test market risk appetite in the week.