U.S Mortgage Rates Fall to Record Lows. The Year of Record Breaking May Well ContinueMortgage rates hit record lows as the coronavirus spreads to the U.S. With another rate cut priced in and the spread continuing more downside is expected.
Mortgage rates fell for a 2nd consecutive week in the week ending 5th March, marking the 5th week in the red out of 7.
The weekly decline saw mortgage rates fall to the lowest level in its almost 50-year history.
Market risk aversion stemming from the ever-widening spread of the coronavirus did the damage in the week, as the FED delivered an emergency rate cut on Tuesday.
Compared to this time last year, 30-year fixed rates were down by 112 basis points.
30-year fixed rates were also down by 165 basis points since November 2018’s most recent peak of 4.94%.
Economic Data from the Week
It was a busy 1st half of the week on the economic data front. Key stats included the markets preferred ISM Manufacturing and Non-Manufacturing PMI numbers for February.
Following some dire Markit survey-based figures from the previous week, the all-important non-manufacturing PMI impressed, but not enough to prevent a Dollar rout.
On Tuesday, the FED delivered an emergency 50 bps rate cut, with the spread of the coronavirus in the U.S painting a dim outlook.
The markets are expecting a 2nd rate cut later in the month, largely because a single rate cut could have waited until the FOMC meeting.
Fiscal policy support may also be on its way… It may not be enough, however. The U.S government will not be able to contain the virus and that was a major concern in the week.
Freddie Mac Rates
The weekly average rates for new mortgages as of 5th March were quoted by Freddie Mac to be:
- 30-year fixed rates slid by 16 basis points to 3.29% in the week. Rates were down from 4.41% from a year ago. The average fee remained unchanged at 0.7 points.
- 15-year fixed also slid by 16 basis points 2.79% in the week. Rates were down from 3.83% compared with a year ago. The average fee fell from 0.8 to 0.7 points.
- 5-year fixed rates decreased by 2 basis points to 3.18% in the week. Rates were down by 69 points from last year’s 3.87%. The average fee remained unchanged at 0.2 points.
According to Freddie Mac, mortgage rates hit a record 3.29% in the week, the lowest level in its nearly 50-year history. While rates were on the slide, mortgage applications jumped by 10% in the last week from 1-year ago, with no signs of slowing down.
Given these strong indicators in rates and sales, as well as the recent jump in new construction, Freddie Mac sees the housing market continue to be a positive influence for the broader economy.
Mortgage Bankers’ Association Rates
For the week ending 28th February, rates were quoted to be:
- Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.84% to 3.74. Points decreased from 0.26 to 0.25 (incl. origination fee) for 80% LTV loans.
- Average interest rates for 30-year fixed with conforming loan balances slid from 3.73% to 3.57%. Points decreased from 0.27 to 0.26 (incl. origination fee) for 80% LTV loans.
- Average 30-year rates for jumbo loan balances remained unchanged at 3.72%. Points decreased from 0.23 to 0.20 (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, surged 15.1% in the week ending 28th February. In the week ending 21st February, the Index had increased by 1.5%.
The Refinance Index jumped 26% from the previous week and was 224% higher than the same week a year ago. In the previous week, the Index had fallen 1%
The refinance share of mortgage activity increased from 60.8% to 66.2% in the week ending 28th February. In the week prior, the refinance share had decreased from 63.2% to 60.8%.
According to the MBA, fixed mortgage rates fell to their lowest level in more than 7-years. Negative sentiment towards the economic impact from the spread of the coronavirus did the damage.
The MBA added that, given the further drop in Treasury yields this week, refinance activity will increase even more until fears subside and rates stabilize.
With the real estate market now entering the spring homebuying season, the next few weeks are key…
An extended period of economic uncertainty could leave home shoppers on the side-lines near-term.
For the week ahead
It’s quiet 1st half of the week for the Greenback.
Key stats include February inflation figures due out on Wednesday and Thursday. While consumer prices are of interest, the markets may be more interested in wholesale inflationary pressures…
From late last week, nonfarm payrolls and wage growth eased immediate concerns over the economy, though February numbers are of little comfort.
Expectations are for the FED to deliver another 50 bps rate cut later this month, which will leave Treasuries yields on the back foot.
Barring the announcement of a cure or the discovery of a successful treatment drug that has ample supply, there’s not too much that can change the narrative near-term.
All of this suggests further downside to mortgage rates. It could mean a slide in demand to boot, however, which would come at a bad time for the U.S economy.
From elsewhere, trade data out of China over the weekend will set the tone at the start of the week.