U.S Mortgage Rates Hit Reverse with More on the WayMortgage rates resumed their downward trend. Market reaction to the spread of the coronavirus could see more declines in the weeks ahead.
Mortgage rates hit reverse in the week ending 27th February, the pullback marking a 4th week in decline out of 6.
The weekly decline saw mortgage rates reverse two consecutive weekly gains to leave rates back at the lowest level since Oct-16.
Market risk aversion stemming from the spread of the coronavirus did the damage in the week, as the U.S also fell victim to the virus.
Compared to this time last year, 30-year fixed rates were down by 90 basis points.
30-year fixed rates were also down by 149 basis points since November 2018’s most recent peak of 4.94%.
Economic Data from the Week
Economic data through the 1st half of the week was on the lighter side. Key stats included February consumer confidence and January core durable goods orders.
While there was a slight uptick in the numbers, private sector PMI numbers from the previous Friday had reported a contraction in the services sector. It was the PMIs that shifted sentiment towards the Dollar from a data perspective.
On the housing sector front, economic data continued to paint a rosy picture, however.
New home sales jumped by 7.9% in January, with pending home sales rising by 5.2%.
We saw U.S Treasury yields hit reverse, with new coronavirus cases and a stark warning by the CDC driving U.S equity markets into corrective territory.
FED Chair Powell had talked of a resilient U.S economy. Recent economic data and the risk of a spread of the virus across the U.S suggested otherwise.
On Friday of last week, the FED Chair stated that the FED was monitoring events closely and would use the tools necessary to provide support.
Freddie Mac Rates
The weekly average rates for new mortgages as of 27th February were quoted by Freddie Mac to be:
- 30-year fixed rates decreased by 4 basis points to 3.45% in the week. Rates were down from 4.35% from a year ago. The average fee remained unchanged at 0.7 points.
- 15-year fixed also fell by 4 basis points 2.95% in the week. Rates were down from 3.77% compared with a year ago. The average fee remained unchanged at 0.8 points.
- 5-year fixed rates decreased by 5 basis points to 3.20% in the week. Rates were down by 64 points from last year’s 3.84%. The average fee remained unchanged at 0.2 points.
According to Freddie Mac, the downward move in mortgage rates was not surprising given the volatility in 10-year Treasury yields.
The low mortgage rate environment coupled with high consumer confidence is expected to drive home sales upward. This trend is anticipated to continue into the Spring.
Mortgage Bankers’ Association Rates
For the week ending 21st February, rates were quoted to be:
- Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.86% to 3.84. Points increased from 0.24 to 0.26 (incl. origination fee) for 80% LTV loans.
- Average interest rates for 30-year fixed with conforming loan balances decreased from 3.77% to 3.73%. Points decreased from 0.28 to 0.27 (incl. origination fee) for 80% LTV loans.
- Average 30-year rates for jumbo loan balances decreased from 3.79% to 3.72%. Points increased from 0.19 to 0.23 (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 1.5% in the week ending 21st February. In the week ending 14th February, the Index had fallen by 6.4%.
The Refinance Index fell by 1% from the previous week and was 152% higher form the same week a year ago. The Index had tumbled by 8% in the previous week.
The refinance share of mortgage activity decreased from 63.2% to 60.8% in the week ending 21st February. In the week prior, the refinance share had fallen from 65.5% to 63.2%.
According to the MBA, last week was the calm before the storm. Softer economic data led to a drop in mortgage rates, returning rates back to levels seen 2-weeks ago.
While the pullback in mortgage rates supported mortgage applications, refinance applications fell marginally.
Purchase volume remained strong, supported by a combination of low rates and the increased pace of construction in recent months.
The MBA added that, as fears regarding the coronavirus have increased, Treasury yields have dropped to record lows in the week. The impact will be reflected in next week’s results.
For the week ahead
It’s a busy week ahead for the U.S Dollar.
Key stats through the 1st half of the week include the market’s preferred ISM private sector PMI numbers on Monday and Wednesday.
Expect plenty of sensitivity to the numbers, with a contraction in the non-manufacturing sector likely to cause more market panic.
Mid-week, ADP non-farm employment change figures are also due out on Wednesday.
Strong labor market conditions remain a key factor in demand for properties and mortgages. Any hint of a pullback in the pace of hiring and we could see demand for mortgage applications to be impacted…
From elsewhere, private sector PMI numbers out of China from the weekend and the first half of the week will also influence.
The PMI numbers from the weekend were particularly dire and with few positives to take from them, if any…
Outside of the numbers, the coronavirus will remain the key driver, with any dire news likely to overshadow the numbers.