U.S Mortgage Rates Hit Reverse. Record Low Rates Continue to Drive Buyer Demand

Mortgage rates hit reverse in the week ending 27^th August to end a run of 2 consecutively weekly rises.

30-year fixed rates fell by 8 basis points to 2.91%, reversing a 3 basis point rise from the week prior.

Compared to this time last year, 30-year fixed rates were down by 67 basis points.

30-year fixed rates were also down by 203 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 consumer confidence, durable goods orders, and the weekly jobless claims figures.

While durable goods and core durable goods orders jumped in July, consumer confidence made an unexpected fall.

With labor market conditions continuing to deliver plenty of uncertainty, initial jobless claims came in at 1.006m in the week ending 21^st August.

The only positive in the week was the durable goods orders. While the stats did influence, there was plenty of apprehension ahead of FED Chair Powell’s speech from Jackson Hole on Thursday.

A change to the FED’s monetary policy framework hit U.S Treasury yields and the Dollar.

Geopolitics and COVID-19 news updates also delivered some uncertainty. While the U.S and China trade talks delivered positive news, fresh spikes in new COVID-19 cases in the EU were negative.

For now, however, hopes of a COVID-19 vaccine continue to limit the impact of the COVID-19 numbers on market risk sentiment.

Freddie Mac Rates

The weekly average rates for new mortgages as of 27^th August were quoted by Freddie Mac to be:

• 30-year fixed rates decreased by 8 basis points to 2.91% in the week. Rates were down from 3.58% from a year ago. The average fee remained unchanged at 0.8 points.

• 15-year fixed rates fell by 8 basis points to 2.46% in the week. Rates were down from 3.06% compared with a year ago. The average fee remained unchanged at 0.7 points.

• 5-year fixed rates remained unchanged at 2.91% in the week. Rates were down by 40 points from last year’s 3.31%. The average fee fell from 0.3 points to 0.2 points.

According to Freddie Mac,

• Mortgage rates remain at record lows as uncertainty lingers.
• Lower rates continue to incentivize potential buyers.
• The home-buying season, which shifted from spring to summer, will likely continue into the fall.

Mortgage Bankers’ Association Rates

For the week ending 21^st August, rates were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, remained unchanged at 3.16%. Points increased from 0.27 to 0.29 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances decreased from 3.13% to 3.11%. Points fell rose 0.36 to 0.38 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances remained unchanged at 3.41. Points also remained unchanged at 0.35 (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 6.5% in the week ending 21^st August. In the week prior, the index had decreased by 3.3%.

The Refinance Index slid by 10% from the previous week and was 34% higher than the same week a year ago. In the week prior, the index had fallen by 5%.

The refinance share of mortgage activity declined from 64.6% to 62.6% in the week ending 21^st August. In the week prior, the share had fallen from 65.7% to 64.6%.

According to the MBA,

• Despite the lower rates, conventional refinance applications fell by 11% and government refinance applications by 6%.
• The combined declines left the total refinance index at its lowest level since July.
• While refinances were on the slide, the home purchase market remains a bright spot for the overall economy.
• Purchase applications were essentially unchanged but were 33% higher than a year ago. This marked the 14^th straight week of year-on-year gains.
• Mortgage rates at record lows and households looking for more space are driving this summer’s surge in demand.

For the week ahead

It’s a relatively busy 1^st half of the week on the U.S economic calendar.

Key stats include August’s ISM private sector PMIs, ADP nonfarm employment change, and the weekly jobless claims figures.

Expect plenty of influence from the stats. The markets will be looking for a combination of improved private sector conditions and a slide in jobless claims.

On the geopolitical risk front, any chatter from Beijing and the Oval Office will also have an impact on yields.