U.S Mortgage Rates – Hold Steady But Could Be in for a Slide

Mortgage rates held steady last week but could be in the for a slide as Trump signals fresh tariffs on Chinese goods.
Bob Mason
Interest Rates

Mortgage rates were flat in the week ending 1st August. 30-year fixed rates held steady at 3.75% following a 6 basis point fall in the week ending 25th July.

The flat week left 30-year rates close to the lowest level since late 2016 according to figures released by Freddie Mac.

Compared to this time last year, 30-year fixed rates were down by 85 basis points.

More significantly, 30-year fixed rates are down by 119 basis points since last November’s most recent peak of 4.94%.

Freddie Mac noted that mortgage rates have stabilized over the last 2-months, reflecting the recovery and improvement in the U.S economy. Looking ahead, the combination of low mortgage rates, tight labor market, and higher consumer confidence should support the housing market. House price sales are expected to pick up through the summer and early fall.

Economic Data from the Week

Key stats out of the U.S through the 1st half of the week were on the heavier side.

After a quiet Monday, the FED’s preferred Core PCE Price Index numbers, personal spending, and consumer confidence figures provided direction on Tuesday.

While the annual rate of inflation picked up from 1.5% to 1.6% in June, inflation continued to fall short of the FED’s 2% target. The lack of inflationary pressures supported the anticipated rate cut on Wednesday.

Consumer confidence rebounded in July, with the CB Consumer Confidence Index rising from 124.3 to 135.7. Personal spending also held steady, rising by 0.3% following a 0.4% rise in May.

On Wednesday, the ADP nonfarm employment change figure also supported yields, with 156k jobs added in July. Economists had forecasted a 150k rise following a 112k rise in June.

The FED hawkish rate cut was the main event of the week, however. Failure to signal further rate cuts down the road did little to Treasury yields mid-week.

Outside of the stats, negative sentiment towards the U.S – China trade war weighed.

Freddie Mac Rates

The weekly average rates for new mortgages as of 1st August were quoted by Freddie Mac to be:

  • 30-year fixed rates remained unchanged at 3.75% in the week. Rates were down from 4.60% from a year ago. The average fee rose from 0.5 to 0.6 points.
  • 15-year fixed rates increased by 2 basis points to 3.20% in the week. Rates were down from 4.08% from a year ago. The average fee held steady at 0.5 points.
  • 5-year fixed rates slipped by 1 basis point to 3.46% in the week. Rates were down by 47 basis points from last year’s 3.93%. The average fee held steady at 0.4 points.

Mortgage Bankers’ Association Rates

For the week ending 26th July, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.98% to 3.94%, the lowest level since Sep-17. Points decreased from 0.31 to 0.29 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances remained unchanged at 4.08%. Points increased from 0.33 to 0.34 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances also remained unchanged at 4.04%. Points decreased from 0.25 to 0.22 (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, decreased by 2% in the week ending 26th July. The fall followed on from a 1.9% decline in the week ending 19th July.

The Refinance Index increased by 0.1% in the week ending 26th July. The Index had decreased by 2% in the week ending 19th July.

The share of refinance mortgage activity increased from 49.8% to 50.5%, reversing a fall from 50.0% to 49.8% in the week prior.

According to the MBA, mortgage applications were down last week as a result of a 3% fall in purchase applications. In spite of the pullback, purchase activity was up by 6% year-on-year. The Mortgage Applications Index fell for a 3rd consecutive week to reach its lowest level since March, however.

In spite of strong demand, a lack of supply continued to restrict buying activity.

For the week ahead

It’s a relatively quiet first half of the week ahead.

Key stats due out of the U.S include July service sector PMIs due out on Monday and June JOLTs job opening numbers due out on Tuesday.

Outside of the numbers

While we can expect the market’s preferred ISM non-manufacturing PMI to impact yields, market reaction to Trump’s latest tariff threat will likely continue to dictate risk sentiment.

The U.S President would need to change his stance on tariffs or China would need to agree to get the ball rolling to prevent a further pullback in Treasury yields and ultimately mortgage rates…

On the monetary policy front, FOMC member chatter will also have an impact.

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