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U.S Mortgage Rates as Lenders Look to Curb Demand

Supply led to a rise in mortgage rates last week as demand surged in response to falling yields. There could be more of the same if volatility persists.
Bob Mason

Mortgage rates defied gravity in the week ending 12th March, with 30-year fixed rates rising for the 1st time in 3-weeks.

Despite the continued global spread of the coronavirus, 30-year fixed rates increased by 6 basis points to 3.36%.

The upside in the week was attributed to a lack of lender capacity to meet a surge in demand for new mortgages and refinance applications. In an attempt to ease demand, lenders increased rates in a bid to curb applications.

While rates were on the rise in the week, 30-year fixed rates have fallen 95 basis points, year-on-year.

30-year fixed rates were also down by 158 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

It was a quiet 1st half of the week on the economic data front. Key stats included February inflation figures and weekly jobless claims numbers.

The stats had a muted impact on U.S Treasury yields, however, with U.S President Trump’s national address overnight on Wednesday spooking the markets.

At the start of the week, things had not been much better, with the virus making its presence known in the West. The spread led to the WHO raising its classification to a pandemic.

Risk aversion drove demand for U.S Treasuries in the 1st half of the week that would have normally weighed on mortgage rates.

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Freddie Mac Rates

The weekly average rates for new mortgages as of 12th March were quoted by Freddie Mac to be:

  • 30-year fixed rates rose by 7 basis points to 3.36% in the week. Rates were down from 4.31% from a year ago. The average fee remained unchanged at 0.7 points.
  • 15-year fixed fell by 2 basis points 2.77% in the week. Rates were down from 3.76% compared with a year ago. The average fee held steady at 0.7 points.
  • 5-year fixed rates slid by 17 basis points to 3.01% in the week. Rates were down by 83 points from last year’s 3.84%. The average fee remained unchanged at 0.2 points.

According to Freddie Mac, refinance applications continued to surge, while 30-year fixed mortgage rates ticked up from last week’s historical low.

By historical standards, mortgage rates remained at extraordinary levels. Many home buyers considered refinancing options to increase disposable incomes.

Mortgage Bankers’ Association Rates

For the week ending 6th March, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.74% to 3.57. Points remained unchanged at 0.25 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances slid from 3.57% to 3.47%, the lowest level since Dec-2012. 3.47% was also the lowest level in survey history. Points increased from 0.26 to 0.27 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances fell from 3.63% to a series low 3.58%. Points decreased from 0.21 to 0.20 (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, jumped by 55.4% to its highest level since Apr-09 in the week ending 6th March. In the week ending 28th February, the Index had risen by 15.1%.

The Refinance Index surged by 79% from the previous week to its highest level since Apr-09 and was 479% higher than the same week a year ago. In the previous week, the index had jumped by 26%.

The refinance share of mortgage activity increased from 66.2% to 76.5% in the week ending 6th March. In the week prior, the refinance share had risen from 60.8% to 66.2%.

According to the MBA, market uncertainty surrounding the coronavirus led to a considerable drop in U.S Treasury rates. The slide in yields caused 30-year fixed rates to fall to match its December 2012 survey low of 3.47%.

The slide in rates led to a surge in both refinancing and new mortgage applications. The refinance index saw its largest weekly increase since Nov-2008.

Taking into account the current economic situation and how much rates have fallen, MBA almost doubled its 2020 refinance originations forecast to $1.2tn. That’s a 37% increase from 2019 and the strongest refinance volume since 2012.

For the week ahead

It’s relatively busy 1st half of the week for the Greenback.

Key stats include NY Empire State Manufacturing figures for March, due out on Monday and February retail sales figures due out on Tuesday.

Barring dire numbers, we would expect February industrial production and business inventories to have a muted impact on Tuesday.

On Wednesday, building permits and housing start numbers for February will also be brushed aside. The FOMC interest rate decision is the main event of the week on Wednesday. With the markets expecting a 2nd rate cut, the FOMC economic projections will have the greatest impact. It will be the first time that the FED will be in a position to quantify the impact of the virus on the U.S economy…

Combined with monetary policy, the U.S administration called a national emergency last Friday. The markets will be watching closely to assess the timelines for a rollout to counter the impact of the coronavirus.

While both monetary and fiscal support are of significant influence, containment remains the key near-term…

From elsewhere, China’s industrial production and retail sales figures for February will also be in focus on Monday.

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