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U.S Mortgage Rates Hold Steady Unemployment Numbers Sink Applications

U.S Mortgage rates hold steady as applications slide and the FED delivers another bazooka, with unemployment now a major concern…
Bob Mason
Mortgage application loan agreement and house key

Mortgage rates failed to move in the week ending 9th April, bring to an end a run of 2 consecutive weekly declines.

Mortgage rates had been on the rise in mid-March due to a surge in demand stemming from a COVID-19 driven slide in mortgage rates. At the turn of the quarter, however, rates hit reverse as the FED delivered and applications began to tumble.

Lenders had had to increase rates to deter applications as backlogs continued to rise and capacity issues hit processing times.

Compared to this time last year, 30-year fixed rates were down by 79 basis points.

30-year fixed rates were also down by 161 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the lighter side in the week. The markets had to wait until Thursday for key stats to consider. Earlier in the week, February JOLTs job openings were ignored following the previous week’s nonfarm payrolls and the weekly jobless claims figures.

On Thursday, the stats were skewed to the negative once more. Initial jobless claims jumped by 6.6m in the weekend ending 3rd April, with consumer sentiment taking a hit in April.

While the stats were on the negative front, appetite for riskier assets was on the rise as the number of new coronavirus cases eased in the week.

On Thursday, the FED added further support to the U.S economy, which offset market angst over the economic outlook.

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Freddie Mac Rates

The weekly average rates for new mortgages as of 9th April were quoted by Freddie Mac to be:

  • 30-year fixed rates held steady at 3.33% in the week. Rates were down from 4.12% a year ago. The average fee remained unchanged at 0.7 points.
  • 15-year fixed fell by 5 basis points to 2.77% in the week. Rates were down from 3.60% a year ago. The average fee remained unchanged at 0.6 points.
  • 5-year fixed rates remained unchanged at 3.40% in the week. Rates were down by 40 points from last year’s 3.80%. The average fee held steady at 0.3 points.

According to Freddie Mac, there is room for rates to go lower. This year, 10-year Treasury yields have fallen by a full percentage point, while mortgage rates have only fallen by 33 basis points. As financial market conditions improve, Freddie Mac expects mortgage rates to resume a downward trend through the 2nd half of the year.

Mortgage Bankers’ Association Rates

For the week ending 3rd April, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.57% to 3.54. Points decreased from 0.28 to 0.19 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances increased from 3.47% to 3.49%. Points decreased from 0.33 to 0.28 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 3.84% to 3.87%. Points fell from 0.31 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, slid by 17.9% in the week ending 3rd April. In the week prior, the Index had increased by 15.3%.

The Refinance Index slid by 19% and was up by 144% from the same week a year ago. In the previous week, the Index had surged by 26%.

The refinance share of mortgage activity declined from 75.9% to 74.2% in the week ending 3rd April. In the week prior, the Index had increased from 69.3% to 75.9%.

According to the MBA:

  • Mortgage applications fell as economic weakness and a surge in unemployment continued to weigh on the housing market.
  • Purchase activity declined once more, with the index falling to its lowest level since 2015. Compared with a year ago, the Index was down by 33%.
  • With much less liquidity and tighter credit in the jumbo market, average loan sizes were also in decline. Jumbo mortgage rate rose to the highest level since January as a result.
  • Given the ongoing mortgage rate volatility and current lack of liquidity in certain sectors of the MBS market, swings are expected to continue in refinance activity.

For the week ahead

It’s a busy week for the Greenback.

Key stats include March retail sales figures due on Wednesday and April’s Philly FED Manufacturing PMI on Thursday.

Expect March industrial production figures and NY Empire State Manufacturing Index numbers on Wednesday to also influence yields.

Following the FED’s move last week, however, the markets will be somewhat resilient to any weak numbers.

From the housing sector, March building permits and housing starts may give some initial clues of what impact COVID-19 has had on sentiment in the sector.

The weekly jobless claims figures will also garner plenty of attention.

Outside of the numbers, chatter from the Oval Office and the daily coronavirus updates will also influence. A continued fall in the number of new cases each day would support a pickup in mortgage rates. In reality, however, applications may well continue to slide near-term, which should also pin back mortgage rates.

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