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U.S Mortgage Rates Eased Back and Could Slide in the Week Ahead

U.S mortgage rates fell back and could slide this week should the situation in the Middle East deteriorate. Another war in the Middle East?
Bob Mason
Mortgage application loan agreement and house key

Mortgage rates fell by 2 basis points in the week ending 2nd January. In the week prior, 30-year mortgage rates had risen by just 1 basis point to 3.74%.

With mortgage rates down in the week, 30-year rates continued to hold 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 79 basis points.

30-year fixed rates are also down by 122 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

It was a relatively busy week on the economic data front in the week. Key stats from the U.S included November trade and pending home sales and December consumer confidence and Chicago PMI numbers.

The numbers were mixed in the week. On the positive front, the Chicago PMI rose from 46.3 to 48.9 in December, with the goods trade deficit narrowing from $66.53bn to $63.19bn.

Housing sector numbers were also positive. Pending home sales rose by 1.2% in November, with house prices on the rise in October.

On the negative, however, was a fall in consumer confidence in December. The fall was not enough to rattle the markets, however, limiting any downside in U.S Treasury yields.

Freddie Mac Rates

The weekly average rates for new mortgages as of 2nd January were quoted by Freddie Mac to be:

  • 30-year fixed rates decreased by 2 basis points to 3.72% in the week. Rates were down from 4.44% from a year ago. The average fee remained unchanged at 0.7 points.
  • 15-year fixed rates fell by 3 basis points to 3.16% in the week. Rates were down from 3.99% from a year ago. The average remained unchanged at 0.7 points.
  • 5-year fixed rates increased by 1 basis point to 3.46% in the week. Rates were down by 52 basis points from last year’s 3.98%. The average fee held steady at 0.3 points.

According to Freddie Mac, the combination of improved economic data and market sentiment led to stability in mortgage rates. Rates have hovered at around 3.7% over the last 8-weeks.

Volatility in mortgage rates through the 1st half of last year had led to a slowdown in the housing sector.

The currently low mortgage rate environment combined with the strong labor market environment is expected to continue to support house prices and home sales.

Mortgage Bankers’ Association Rates

For the week ending 20th December, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 3.79% to 3.87%. Points fell from 0.36 to 0.33 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances rose from 3.98% to 3.99. Points remained unchanged 0.33 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 3.96% to 3.97%. Points decreased from 0.26 to 0.25 (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, decreased by 5.3% in the week ending 20th December. In the week ending 13th December, mortgage applications had fallen by 5.0%.

The Refinance Index fell by 5% in the week, following on from 7% fall in the week in the week ending 13th December. The Refinance Index was up by 128% from the same week a year earlier.

The share of refinance mortgage activity increased from 62.2 to 62.6% in the week, reversing a fall from 62.4% to 62.2% in the week prior.

With the MBA offices closed until 2nd January, results for the weeks ending 27th December and 3rd January will be released on 8th January.

For the week ahead

It’s a relatively busy week ahead as traders continue to return from the holidays.

From the U.S, key stats include November trade and factory order figures and December non-manufacturing PMIs due out on Tuesday.

December ADP Nonfarm Employment Change figures are also due out on Wednesday that will influence.

While we can expect the numbers to provide U.S Treasuries with direction, geopolitics will likely be the key driver.

The Middle East, Brexit and Impeachment chatter are all in focus. Iran’s response to events on Friday could drive demand for safe havens from the start of the week. Few expect Iran to sit back following the airstrike that killed its most senior military commander…

Any escalation would sink mortgage rates, which would certainly drive demand for the refinance applications in the week. Uncertainty could limit any upside for new mortgage applications, however.

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