U.S Mortgage Rates Hit a New Record Low. Can COVID-19 Deliver sub-3%?

Mortgage rates saw their 1^st decline in 3 weeks in the week ending 18^th June.

30-Year fixed rates decreased by 8 basis points to a new all-time low 3.13%. In the previous week, 30-year fixed rates had risen by 3 basis points to 3.21%.

Compared to this time last year, 30-year fixed rates were down by 71 basis points.

30-year fixed rates were also down by 181 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the busier side through the 1^st half of the week.

Key stats included May retail sales figures, June manufacturing numbers out of NY State and Philly, and the weekly jobless claims.

On the positive front was a pickup in manufacturing sector activity in June and a rebound in retail sales in May.

For the markets, another 1.508m jump in jobless claims in the week ending 12^th June was negative, however.

Economic data ultimately had a muted impact as did FED Chair Powell’s testimony and FED policy support.

News of fresh COVID-19 spikes across a number of U.S states newly reopened raised concerns over a 2^nd wave. A jump in new cases would bring into doubt the reopening of the U.S and the economic recovery.

On the monetary policy front, the FED’s decision to purchase up to $250bn worth of individual corporate bonds was also an alarm bell.

The decision to store up corporate America was yet more evidence of the FED’s concerns over what lies ahead.

Freddie Mac Rates

The weekly average rates for new mortgages as of 18^th June were quoted by Freddie Mac to be:

• 30-year fixed rates fell by 8 basis points to 3.13% in the week. Rates were down from 3.84% from a year ago. The average fee decreased from 0.9 to 0.8 points.

• 15-year fixed declined by 4 basis points to 2.58% in the week. Rates were down from 3.25% compared with a year ago. The average fee remained unchanged at 0.8 points.

• 5-year fixed rates slipped by 1 basis point to 3.09% in the week. Rates were down by 39 points from last year’s 3.48%. The average fee remained unchanged at 0.4 points.

According to Freddie Mac:

• In contrast to the uneven economic rebound, the housing market was one segment that exhibited strength.
• Purchase demand activity is up over 20%, year-on-year, which is the largest rise since Jan-09.
• Demand came off the back of another record low in mortgage rates, as inflationary pressures softened further.
• Freddie Mac does think, however, that inventories will become an issue down the road. Inventories were at near to record lows as the pandemic hit U.S soil.

Mortgage Bankers’ Association Rates

For the week ending 12^th June, rates were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.38 to 3.33%. Points decreased from 0.24 to 0.23 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances decreased from 3.87% to 3.30%. Points fell from 0.30 to 0.29 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 3.70% to 3.67. Points increased from 0.26 to 0.28 (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, rose by 8.0% in the week ending 12^th June. In the week prior, the index had increased by 9.3%.

The Refinance Index increased by 10% in the week ending 12^th June and was 106% higher than in the same week a year ago. In the previous week, the Refinance Index had risen by 11%.

The refinance share of mortgage activity increased from 61.3% to 63.2% of total applications in the week. In the week prior, the share had increased from 59.5% to 61.3% of total applications.

According to the MBA:

• Purchase applications increased to the highest level in over 11-years and rose for the 9^th consecutive week.
• The housing market continues to experience the release of unrealized pent-up demand from earlier in the spring.
• An uptick in consumer confidence contributed to the uptick in demand.
• Demand for refinancing continued to recover as households looked to gain savings on monthly mortgage payments.

For the week ahead

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

Key stats from the U.S include prelim June private sector PMIs, May’s durable goods orders, and the weekly jobless claims.

While the stats will have an impact on U.S Treasury yields and mortgage rates, COVID-19 news and Trump could have greater influence.

We have seen the U.S president come under greater scrutiny as a result of the pandemic. The premature reopening of the U.S in a bid to deliver an early economic recovery may be backfiring and there’s no fake news. Trump had talked down a pandemic when the U.S death toll was at sub-100,000.

Expect COVID-19 updates and chatter from Capitol Hill to remain the key driver. The Republicans will be looking to distract voters, which tends to spell trouble…