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Bob Mason
mortgage rate

Adding to the downside for Treasury yields was some disappointing economic data out of the U.S, with manufacturing and service sector PMI numbers showing slower growth at the end of the 1st quarter, suggesting that a 4th rate hike for the year may be over-bullish unless the economy accelerates through the early part of the 2nd quarter, with inflation continuing to sit shy of the FED’s 2% target.

The recent softening in mortgage rates has been relatively minor, however, when looking at the year-on-year increase, though the uptick in mortgage rates have had limited impact on applications and on the demand side that continues to weigh on the housing supply in the U.S.

How China and the U.S resolve the current trade dispute will be of particular influence to housing demand and for mortgage applications. China’s tariffs are far more punitive than that of the U.S, farming, and manufacturing likely to take a sizeable hit if China goes through with its threat. The longer any tariffs are imposed the worse it would be for the U.S economy and ultimately the housing sector, though mortgage rates would likely also ease further in such an event.

For now, sentiment has shifted, with both sides stating that there is no trade war, suggesting that the recent moves have been nothing more than a muscle flexing exercise.

A resolution to the current dispute would likely see mortgage rates begin to climb, though following March’s nonfarm payroll figures released on Friday, doubts over a 4th rate hike may linger, in spite of the jump in wage growth that would be far more influential when considering the current unemployment rate.

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

  • 30-year fixed rate loan slipped to from 4.44% to 4.40% last week, while up from 4.1% a year ago.
  • 15-year fixed rates fell from 3.90% to 3.87%, while up from 3.36% from a year ago.
  • 5-year fixed rates stood at 3.62%, down from the previous week’s 3.66%, while up from last year’s 3.14%.

Average interest rates for 30-year fixed, backed by the FHA eased from 4.75% to 4.74%, moving back from the almost 7-year high hit earlier in the month, while the average interest rate for 30-year fixed with conforming loan balances remained steady at 4.69% to hold at a 4-year high. 30-year rates for jumbo loan balances slipped from 4.6% to 4.56% following a 5 basis point rise last week.

The slide in mortgage rates will ease some of the pressure on those looking to get on the property ladder, though the continued rise in demand for housing places further pressure on U.S house prices near-term that will likely continue to be the biggest hurdle for those looking to purchase.

March’s wage growth figures and signs of a possible shortage of skilled workers could finally begin to offset the recent increases in mortgage rates, however, which should east some of the pressure coming from the direction of the real estate market and support demand for U.S mortgage applications.

According to figures released by the Mortgage Bankers Association, the Market Composite Index, a measure of mortgage loan application volume, fell by 3.3% week-on-week, with the Refinance Index falling 5% from the previous week.

The larger fall in the Refinance Index saw the refinance share of mortgage applications fall to the lowest level since September 2008, refinances accounting for 38.5% of total applications, down from the previous week’s 39.4%.

In spite of the weekly fall in mortgage applications, mortgage applications were up 5% over the last 12-months, the rise in applications coming in spite of the uptick in mortgage rates, with a tightening labor market and rising wages supporting demand through the last 12-months.

While applications were up, the MBA also reported a fall in mortgage credit availability in March, with the Mortgage Credit Availability Index (MCAI) falling 1.5% to 177.9. A fall in the MCAI is indicative of a tightening in lending standards. The Government MCAI also fell, down 2.1% in March, the numbers aligned with the upward trend in mortgage rates leading to the need to tighten lending standards in recent months.

For the week ahead, inflation figures out of the U.S on Wednesday along with the release of the FOMC meeting minutes will influence Treasury yields and mortgage rates, with trade war chatter another factor to be considered, the recent downtrend in mortgage rates likely to be tested should Trump back off on trade tariffs and inflation figures come in ahead of expectations.

Last week’s wage growth figures would certainly support a pick-up in inflation in the coming months, assuming that are no economic speed bumps along the way, with trade tariffs another inflation driver should the U.S administration act on its recent threats.

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