U.S Mortgage Rates Fall for a 2nd Consecutive Week Supporting Demand

Mortgage rates were in decline again in the week ending 28^th January, marking a 2^nd consecutive weekly fall. 30-year fixed rates fell by 4 basis points to 2.73%.

Compared to this time last year, 30-year fixed rates were down by 78 basis points.

30-year fixed rates were also down by 221 basis points since November 2018’s last peak of 4.94%.

Economic Data from the Week

Through the 1^st half of the week, economic data from the U.S was on the lighter side. Key stats included consumer confidence and core durable goods and durable goods orders.

The stats were skewed to the positive, though failed to support U.S Treasury yields.

In January, the CB Consumer Confidence Index increased from 87.1 to 89.3, with core durable goods rising by 0.7% in January. Both sets of figures came in ahead of forecasts.

Durable goods orders were the only disappointment in the 1^st half of the week, rising by just 0.2% in December.

While the stats were skewed to the positive, the FED weighed on market risk appetite on Wednesday.

The FED left monetary policy unchanged, leaving the focus on the FOMC press conference.

In spite of FED Chair Powell’s assurances that there would be no tapering to bond purchases, the riskier assets took a hit in response.

Concerns over rising COVID-19 cases in Europe and vaccine supply shortages added to the market angst in the week.

New strains of the coronavirus led to border closures, raising further concerns over the economic outlook.

Freddie Mac Rates

The weekly average rates for new mortgages as of 28^th January were quoted by Freddie Mac to be:

• 30-year fixed rates declined by 4 basis points to 2.73% in the week. This time last year, rates had stood at 3.51%. The average fee remained steady at 0.7 points.

• 15-year fixed rates fell by 1 basis point to 2.20% in the week. Rates were down by 80 basis points from 3.00% a year ago. The average fee remained unchanged at 0.6 points.

• 5-year fixed rates held steady at 3.80%. Rates were down by 44 points from 3.24% a year ago. The average fee fell from 0.4 points to 0.3 points.

According to Freddie Mac,

• Mortgage rates continued to decline as the markets reacted to the new administration in the capital and COVID-19 news.
• In spite of house prices rising at the fastest rate in years, demand for housing was strong.
• Low inventories mean that supply is going to be an ongoing issue for the foreseeable future.

Mortgage Bankers’ Association Rates

For the week ending 22^nd January, the rates were:

• Average interest rates for 30-year fixed to conforming loan balances increased from 2.92% to 2.95%. Points decreased from 0.37 to 0.32 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA decreased from 3.01% to 2.88%. Points rose from 0.29 to 0.34 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 3.19% to 3.17%. Points increased from 0.28 to 0.31 (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, slid by 4.1% in the week ending 22^nd January. In the week prior, the index had fallen by 1.9%.

The Refinance Index fell by 5% and was 83% higher than the same week one year ago. The index had also declined by 5% in the previous week.

In the week ending 22^nd January, the refinance share of mortgage activity fell from 72.3% to 70.7%. In the week prior, the share had decreased from 74.8% to 72.3% of total applications.

According to the MBA,

• 30-year fixed rates rose to their highest level since Nov-2020 at 2.95%, while all other rates were in decline.
• Increased sensitivity to higher rates led to large declines in government purchase applications and refinance applications.
• The refinance index was down for a 2^nd consecutive week, while still up by 83% from a year ago.
• Despite a fall in purchase activity in the last week, activity was still up by 16% from a year ago.
• Purchase loan amounts hit a record high $395,200, driven by low inventories and rising house prices.

For the week ahead

It’s a busier first half of the week on the U.S economic calendar. Private sector PMI figures for January are due out along with ADP nonfarm employment change figures for January.

Expect the market’s preferred ISM non-manufacturing PMI on Wednesday to have the greatest impact on yields.

From China, private sector PMIs for January will also influence market risk sentiment in the week.

Away from the economic calendar, however, COVID-19 news and chatter from Capitol Hill will remain key drivers.