U.S Mortgage Rates – Mixed but Look Ready to Rise Again

While economic data was on the lighter side, the annual rate of baseline inflation accelerated to 2.1% in March, with headline inflation also jumping. The combination of the pickup in the rate of inflation, coupled with the FOMC meeting minutes that portrayed a more hawkish than anticipated Committee was enough to suggest that the new Chair is willing and able to take a more aggressive path on policy to protect the economy.

With the stats indicating that mortgage rates may soon resume their upward trend, the rhetoric between China and the U.S also improved through the week, easing immediate fears of a trade war, with the U.S President even suggesting a willingness to re-enter TPP talks. A missile strike on Syria and some jitters over peace in the Middle East and Russia’s involvement in Syria will be of some influence in the week ahead, but if the data stacks up and FOMC member chatter talks up the need to manage inflation, it could be the week that mortgage rates make a move.

Freddie Mac rates for new mortgages last week were quoted to be:

• 30-year fixed rate loan rose from 4.40% to 4.42% last week, while up from 4.08% a year ago.
• 15-year fixed rates held steady at 3.87% last week, while up from 3.34% from a year ago.
• 5-year fixed rates slipped from 3.62% to 3.61% over the week, while up from last year’s 3.18%.

Average interest rates for 30-year fixed, backed by the FHA slipped from 4.74% to 4.66%, easing back from the almost 7-year high hit last month, while the average interest rate for 30-year fixed with conforming loan balances slipped from 4.69% to 4.66%, continuing to move around a 4-year high. 30-year rates for jumbo loan balances slipped from 4.56% to 4.53%.

According to the weekly figures released by the Mortgage Bankers Association, the Market Composite Index, which is a measure of mortgage loan application volume, fell by 1.9% week-on-week, following the previous week’s 3.3% decline. The Refinance Index fell by a further 2%, following the previous week’s 5% slide, to take the refinance share of mortgage activity to 38.4%, the lowest since Sept-08.

Refinance mortgage activity has certainly been on the decline and falling at a greater pace than mortgage applications, with refinance mortgage activity has been on the rise last year, in a more rate friendly environment, the FED has been talking about a shift in policy for some time supported by a robust U.S economy.

While refinance mortgages saw a large fall in recent weeks, the MBA also released March figures for its Builder Application Survey that showed mortgage applications for new home purchases falling by 2.6% compared with March 2017, while up 14% month-on-month, to make it a third consecutive month-on-month rise in applications for new home mortgages.

The increase in applications for mortgages for new homes is in line with the seasonal shift, with the spring considered peak season for new home buyers, though tightening credit terms and inventory numbers will continue to have an influence on the total number of mortgage applications, which have been on a downward trend of late.

Good news for home buyers is that there has been a pickup in wage growth and, while March’s nonfarm payroll numbers were weak, the general trend in the labor market remains positive for home buyers, with mortgage rates still considered favorable when compared with historical numbers.

Last week’s March inflation figures have reflected a pickup in inflationary pressure and, with the FED’s more hawkish than expected FOMC meeting minutes released last Wednesday, the recent hovering of mortgage rates at around current levels may come to an end, with another jump likely, particularly should inflationary pressures continue to build.

The more inflationary pressure, the more aggressive the FED will have to be and that’s going to mean a more marked pickup in mortgage rates in the coming months.

For the week ahead, on the economic data front, March retail sales figures will be of particular interest, as will the latest set of building permit and housing start numbers, with some manufacturing PMI numbers and FOMC member chatter for the markets to also contend with.

Some recent economic indicators have been on the softer side, easing some pressure on yields, while the threat of a trade war with China and the missile strikes on Syria will have further implications, both factors that the market and the FED will need to consider through the week that could lead to near-term downward on mortgage rates in the event that either or both escalate.