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U.S Mortgage Rates Hit Record Lows as Application Volume Begins to Recover

Mortgage rates tumbled last week. There could be more downside to come should risk aversion from late last week spill over to the week head.
Bob Mason
Interest Rates

Mortgage rates hit reverse in the week ending 30th April, with the fall in mortgage rates the 4th in 6-weeks.

30-Year fixed rates slid by 10 basis points to 3.23%. In the previous week, mortgage rates had risen by 2 basis points to 3.33%.

The reversal at the end of April left mortgage rates at an all-time low.

Compared to this time last year, 30-year fixed rates were down by 91 basis points.

30-year fixed rates were down by 171 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 week.

Key stats included 1st quarter GDP and the weekly initial jobless claims figures, both of which weighed on risk appetite.

In the 1st quarter, the U.S economy contracted by 4.8%, which was far greater than a forecasted 4.0% contraction.

The markets had hoped that the recent surge in unemployment claims would abate in the week ending 24th April. Disappointment weighed on risk appetite, however, with 3.839m initial jobless claims in the week.

For those looking for a v-shaped economic rebound, the economic data and continued surge in unemployment suggested otherwise.

On the monetary policy front, the FED held rates unchanged on Wednesday, while acknowledging the economic woes ahead.

The assurance of continued support provided temporary relief mid-week. For U.S mortgage rates, the FED has certainly contributed to the decline to record lows, with its ability to purchase an unlimited amount of mortgage-backed securities.

Adding to the downside for mortgage rates has been the demand for U.S Treasuries and lenders lowering mortgage rates. The demand for purchase applications had tumbled in March. Existing home and new home sales slid by 8.5% and by 15.4% respectively. The lower demand and reduction in application backlogs allowed lenders to lower rates.

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Freddie Mac Rates

The weekly average rates for new mortgages as of 30th April were quoted by Freddie Mac to be:

  • 30-year fixed rates slid by 10 basis points to 3.23% in the week. Rates were down from 4.14% from a year ago. The average fee remained unchanged at 0.7 points.
  • 15-year fixed fell by 9 basis points 2.77% in the week. Rates were down from 3.60% compared with a year ago. The average fee slipped from 0.7 points to 0.6 points.
  • 5-year fixed rates tumbled by 14 basis points to 3.14% in the week. Rates were down by 54 points from last year’s 3.68%. The average fee rose from 0.3 points to 0.4 points.

According to Freddie Mac, it is the size and depth of the secondary mortgage market that is keeping rates at record lows.

Low rates continue to support refinancing activity and have provided modest support to purchase demand.

While mortgage rates at current levels are positive for the real estate sector, the COVID-19 pandemic remains negative.

Mortgage Bankers’ Association Rates

For the week ending 24th April, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 3.33% to 3.39. Points increased from 0.19 to 0.20 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances decreased from 3.45% to 3.43%. Points increased from 0.29 to 0.34 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 3.81% to 3.72%. Points decreased from 0.34 to 0.33 (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, fell by 3.3% in the week ending 24th April. In the week prior, the index had decreased by 0.3%.

The Refinance Index slid by 7% from the previous week and was up by 218% from the same week one year ago. In the previous week, the Index had fallen by 1%.

The refinance share of mortgage activity decreased from 75.4% to 71.6% in the week. In the week prior, the share had fallen from 76.2% to 75.4%.

According to the MBA:

  • Purchase applications increased by 12% in the week to the strongest level in almost a month.
  • The 10 largest states reported increases in purchase activity, which is potentially a sign of the start of an upturn in the pandemic-delayed spring home buying season.
  • Recovering from a 5-year low, easing lockdown measures supported the pickup in purchase activity.
  • A fall in mortgage rates to record lows contributed to the jump in purchase applications.
  • For refinances, credit availability for refinance loans have impacted rates for refinance mortgages.

For the week ahead

It’s another relatively busy week for the Greenback.

Key stats include April’s ISM Non-Manufacturing PMI numbers and April’s ADP nonfarm employment change figures will be in focus. Expect the weekly jobless claims figures to also garner plenty of attention.

Following 1st quarter GDP numbers last week, the markets will likely brush aside any 1st quarter stats in the week. These include factory orders and trade data for March. The impact of COVID-19 on the economy is expected to be far more servere in the 2nd quarter as a result of lockdown measures.

Outside of the numbers, expect updates on the testing of COVID-19 treatment drug remdesivir and easing of lockdown measures to remain a key driver.

On the geopolitical front, there is Trump’s accusations of China spreading the virus and tensions in the Middle East to also consider.

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