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Bob Mason
Mortgage application loan agreement and house key

Mortgage rates fell for a 2nd consecutive week in the week ending 28th May, delivering a 6th weekly decline in 10-weeks.

30-Year fixed rates fell by 9 basis points to a new all-time low 3.15%. In the previous week, mortgage rates had fallen by 4 basis points to 3.24%.

Compared to this time last year, 30-year fixed rates were down by 84 basis points.

30-year fixed rates were also down by 179 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the lighter side in the 1st half of the week. May’s consumer confidence figures and the weekly jobless claims numbers were the key drivers.

Consumer confidence only saw a marginal improvement, with concerns over labor market conditions weighing.

The weekly jobless claims came in higher than forecast on Thursday. In spite of a 2.123m rise, this was below the higher numbers seen in recent weeks that provided some support to riskier assets.

Away from the economic calendar, the continued easing of lockdown measures and progress towards a vaccine supported Treasury yields.

Negative sentiment towards the rising tension between the U.S and China did linger, however.

Ultimately, the link between yields and mortgage rates remained broken in the week. A continued rise in mortgages in forbearance contributed to the downward pressure on mortgage rates. According to the MBA, the total number of loans in forbearance increased from 8.16% of servicers’ portfolio volume to 8.36% as of 17th May.

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Freddie Mac Rates

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

  • 30-year fixed rates fell by 9 basis points to 3.15% in the week. Rates were down from 3.99% from a year ago. The average fee increased from 0.7 to 0.8 points.
  • 15-year fixed declined by 8 basis point to 2.62% in the week. Rates were down from 3.46% compared with a year ago. The average fee remained unchanged at 0.7 points.
  • 5-year fixed rates decreased by 4 basis points to 3.13% in the week. Rates were down by 47 points from last year’s 3.60%. The average fee remained unchanged at 0.4 points.

According to Freddie Mac, mortgage rates fell to a record low for the 3rd time in just the last few months.

The downward trend has had an impact on purchase demand that has rebounded from a 35% decline in mid-April to an 8% increase as of last week, year-on-year.

This is quite a rebound when considering the current economic environment. Freddie Mac also noted that refinance activity remains elevated, with average loan sizes of refinance borrowers seeing a $70,000 decline this year.

Mortgage Bankers’ Association Rates

For the week ending 22nd May, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.46 to 3.41%. Points decreased from 0.33 to 0.30 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances increased from 3.41% to 3.42%. Points remained unchanged at 0.33 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 3.66% to 3.71. Points decreased from 0.37 to 0.29 (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, increased by 2.7% in the week ending 22nd May. In the week prior, the Index had fallen by 2.6%.

The Refinance Index declined by 0.2% and was 176% higher than the same week a year ago. In the previous week, the Refinance Index had fallen by 6%.

The refinance share of mortgage activity fell from 64.3% to 62.6% of total applications in the week. In the week prior, the share had slipped from 67.0% to 64.3% of total applications.

According to the MBA:

  • Housing sector activity continued to rebound as various states reopened, leading to more buyers resuming their search.
  • Purchase applications increased 9% last week, marking the 6th consecutive weekly increase and a 54% jump since early April.
  • Purchase loan amounts increased steadily in recent weeks and now sits at its highest level since Mid-March.
  • Despite record-low mortgage rates, refinance was essentially flat while still 176% higher than last year.

For the week ahead

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

Key stats include May’s ISM Manufacturing and Non-Manufacturing PMIs and ADP nonfarm employment change figures.

The markets have looked at April as the bottom of the economic meltdown. Any fall back in ISM numbers will drive demand for U.S Treasuries. This may not translate into yet another weekly fall in mortgage rates, however.

On the employment front, the weekly jobless claims figures are also pointing to another sizeable drop in employment in May. This should leave the U.S Treasuries somewhat immune to another slide in the ADP headline number. On Thursday, weekly jobless claims and trade data are also due out.

Away from the stats, expect the market focus to be on the U.S and China. COVID-19 numbers and news updates also need monitoring. Any upward trend in new coronavirus cases in the U.S and the EU would also test market risk sentiment in the week.

On the positive front, however, is the continued easing of lockdown measures and progress towards a vaccine.

The continued upward surge in applications and dire labor market conditions could limit the downside in rates for the week ahead.

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