U.S Mortgage Rates Fall Back, with Trump’s Recovery Now a Key Driver

Mortgage rates were in decline in the week ending 1^st October. Following a 3 basis point rise in the week prior, the 30-year fixed rate fell by 2 basis points to 2.88%.

Compared to this time last year, 30-year fixed rates were down by 77 basis points.

30-year fixed rates were also down by 206 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the heavier side in the 1^st half of the week.

Key stats included September’s consumer confidence and ADP non-farm employment change figures. Finalized 4^th quarter GDP numbers and Chicago’s PMI for September were also in focus ahead of a busy end to the week.

The CB Consumer Confidence Index jumped from 86.3 to 101.8 in September, with the ADP reporting a 749k rise in nonfarm.

Also positive was an upward revision to 2^nd quarter GDP figures. In the 2^nd quarter, the U.S economy contracted by 31.4%, revised up from a prelim 31.7%.

From the private sector, the Chicago PMI rose from 51.2 to 62.4, with housing sector data also impressing.

Pending home sales jumped by 8.8% in August, following a 5.9% rise in July.

From China, private sector PMIs also supported riskier assets and the optimistic outlook on the Chinese economy.

Away from the economic calendar, however, the 1^st Presidential Debate weighed on riskier assets on Wednesday.

While the debate was market negative, progress on Capitol Hill towards a COVID-19 relief Bill was market risk positive.

Freddie Mac Rates

The weekly average rates for new mortgages as of 1^st October were quoted by Freddie Mac to be:

• 30-year fixed rates decreased by 2 basis points to 2.88% in the week. Rates were down from 3.65% from a year ago. The average fee remained unchanged at 0.8 points.

• 15-year fixed rates fell by 4 basis points to 2.36% in the week. Rates were down from 3.14% compared with a year ago. The average fee remained unchanged at 0.7 points.

• 5-year fixed rates held steady at 2.90% in the week. Rates were down by 48 points from last year’s 3.38%. The average fee also remained unchanged at 0.2 points.

According to Freddie Mac,

• The housing market has seen a strong, upward trajectory amid a very uncertain time. Mortgage rates sitting at sub-3% levels since July have supported the sector.
• Potential buyers are seeing increased purchasing power, with existing homeowners able to refi at better rates.
• Several factors could disrupt this activity, including higher home prices, lower inventories, and lender capacity.

Mortgage Bankers’ Association Rates

For the week ending 25^th September, rates were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.23% to 3.15%. Points increased from 0.37 to 0.43 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances decreased from 3.10% to 3.05%. Points rose from 0.46 to 0.52 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 3.35% to 3.33%. Points decreased from 0.42 to 0.39 (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, declined by 4.8% in the week ending 25^th September. In the week prior, the Index had increased by 6.8%.

The Refinance Index slid by 7% from the week prior and was 52% higher than the same week a year ago. In the previous week, the Index had risen by 9%.

The refinance share of mortgage activity fell from 64.3% to 63.3%. In the week prior, the share had increased from 62.8% to 64.3%.

According to the MBA,

• The 30-year fixed-rate mortgage fell by 5 basis points to 3.05% – the lowest in MBA’s survey.
• In spite of declining rates, refinances fell by more than 6%, attributed to a 9% fall in conventional refinance applications.
• There are indications that refinance rates are not decreasing to the same extent as rates for home purchase loans.
• Many lenders are still operating at full capacity and working through operational challenges. This is limiting the number of applications that they are able to process.

For the week ahead

It’s a relatively busy 1^st half of the week on the U.S economic calendar.

Key stats include September ISM Non-Manufacturing PMI figures and August’s JOLT’s job openings.

On Wednesday, the FOMC meeting minutes will also be in focus.

From the week prior, however, disappointing labor market numbers and U.S President Trump’s positive COVID-19 test will influence.