U.S Mortgage Rates Hold Steady as Geopolitics and Stats Send Mixed Signals

Mortgage rates were flat in the week ending 5^th December. In the week ending 27^th November, 30-year fixed rates had risen by 2 basis points to 3.68%.

With mortgage rates staying flat in the week, 30-year rates continued to hold close to levels last seen in early November of 2016, according to figures released by Freddie Mac.

Compared to this time last year, 30-year fixed rates were down by 107 basis points.

30-year fixed rates are also down by 126 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

It was a relatively busy week on the U.S economic calendar.

Key stats in the 1^st half of the week included November private sector PMIs and ADP nonfarm employment change figures.

On Monday, manufacturing PMI figures disappointed, with the market’s favored ISM PMI falling from 57.7 to 46.6.

Things were not much better for the services sector. On Wednesday, the ISM Non-Manufacturing PMI fell from 54.7 to 53.9.

Also weighing on the Dollar and yields was the ADP number. The ADP reported a 67k rise in nonfarm employment in November, which fell well short of a forecast of 140k.

Things were somewhat more positive on Thursday, however, with weekly jobless claims falling to a 7-month low and factory orders on the rise.

Even the trade deficit narrowed.

On the geopolitical front, it was also a mixed week. Negative chatter on trade in the early part of the week also pinned back yields. Trump talked of delaying a phase 1 agreement with China until after the Presidential Election. He also threatened to roll out tariffs on all French goods.

Through the middle of the week, however, positive chatter resumed, providing support to riskier assets.

Freddie Mac Rates

The weekly average rates for new mortgages as of 5^th December were quoted by Freddie Mac to be:

• 30-year fixed rates held steady at 3.68% in the week. Rates were down from 4.75% from a year ago. The average fee fell held steady at 0.5 points.

• 15-year fixed rates fell from 3.15% to 3.14% in the week. Rates were down from 4.21% from a year ago. The average fee fell from 0.5 points to 0.4 points.

• 5-year fixed rates decreased by 4 basis points to 3.39% in the week. Rates were down by 68 basis points from last year’s 4.07%. The average fee rose from 0.3 points to 0.4 points.

According to Freddie Mac, economic indicators sent mixed signals in the week, leaving mortgage rates flat.

While homebuyer demand was on the rise, private sector PMI figures weighed on yields in the week.

From a Freddie Mac perspective, homebuyers remain bullish on the real estate market, in spite of the economic indicators.

Mortgage Bankers’ Association Rates

For the week ending 29^th November, rates were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, increased from 3.79% to 3.83%. Points rose from 0.23 to 0.31 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances held steady at 3.97%. Points increased from 0.30 to 0.32 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 3.87% to 3.91%. Points decreased from 0.29 to 0.26 (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, tumbled by 9.2%. In the week ending 22^nd November, the Composite Index had increased by 1.5%.

The Refinance Index slumped by 16% in the week ending 29^th November and was 61% higher from the same week a year earlier.

The Index had risen by 5% in the week ending 22^nd November.

The share of refinance mortgage activity decreased from 62.0% to 59.0% in the week, reversing an increase from 59.5% to 62.0% in the week prior.

In the week, the MBA attributed flat yields to a rise in demand for U.S Treasuries, driven by uncertainty over the UK General Election outcome.

The MBA did note that, while rates held steady, applications declined in the week, with a 16% slide in refinances weighing.

While purchase applications were on the rise in the week, they were down by a whopping 24% from a year ago… The figures were distorted by the timing of Thanksgiving, however.

The reality remains that the purchase index sits at its highest level since July, supported by solid wage growth and slower home-price appreciation.

For the week ahead

It’s a relatively quiet first half of the week on the economic data front.

Key stats are limited to 3^rd quarter unit labor costs and nonfarm productivity numbers on Tuesday and November inflation figures due out on Wednesday.

The stats are unlikely to have a material impact on U.S Treasury yields, barring a material softening in inflation.

On the monetary policy front, the FED will have a material influence, however. While there’s no expectation of a policy move, the economic projections will garner significant attention.

Expect any downward revisions to growth forecasts to pressure mortgage rates in the week.

On the geopolitical front, there’s chatter on trade and the UK General Election to consider in the week.

From last week, Friday’s nonfarm payroll and wage growth figures may well set the tone for the FED…