U.S Mortgage Rates – Onwards and Upwards

That was another week to remember in the financial markets and for prospective home buyers, with the FED making its much anticipated March rate hike, while President Trump roiled the markets with the introduction of, not only tariffs on steel and aluminium imports into the U.S but also a $50bn tariff on Chinese goods bound for the U.S.

For prospective home buyers, the fact that the FED held on to its 3 rate hike projection for the year, coupled with an improved outlook towards the U.S economy was certainly a positive and may have been a favourable near-term outcome, all things considered, but there may be trouble ahead should economic conditions continue to remain favourable.

10-year Treasury yields would have certainly had a different movement through the week, if the market panic over the prospects of a trade war hadn’t developed in response to Trump’s tariffs, the markets jumping into the safety of U.S Treasuries through the 2^nd half of the week.

Assuming that a trade war is averted, economic data out of the U.S last week was relatively upbeat and could well push the FED to take a more aggressive path towards policy normalization.

It’s also worth noting that, while 10-year Treasury yields have been on a downward trend in recent weeks, the upward trend in mortgage rates has resumed. 10-year Treasury yields ended last week at 2.81%, down from the previous week’s 2.84% and the week prior’s 2.89%.

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

• 30-year fixed rate loan rose to from 4.44% to 4.45% last week, while up from 4.23% a year ago.
• 15-year fixed rates rose from 3.90% to 3.91%, while up from 3.44% from a year ago.
• 5-year fixed rates stood at 3.68%, up from the previous week’s 3.67% and from last year’s 3.24%.

Average interest rates for 30-year fixed, backed by the FHA decreased from 4.73% to 4.69%, pulling back from last week’s almost 7-year high, while the average interest rate for 30-year fixed with conforming loan balances decreased from 4.69% to 4.68%, sitting just shy of last week’s 4-year high. 30-year rates for jumbo loan balances held steady at 4.55%, following last week’s 0.1 percentage point drop.

Last week’s 1 basis point increase in 30-year fixed mortgage rates was certainly not too bad an outcome for home buyers deciding to get moving, with the upward trend resuming following last week’s fall in rates.

Till now, the upward trend in mortgage rates has failed to deter home buyers from jumping into the property market, with existing home sales rising by 3% in February, according to figures released last week. The increase offset January’s 3.2% fall, taking existing home sales to 5.54m on an annualized basis.

The numbers continue to suggest that there is no shortage of buyers at current levels, while inventories remain an issue for the real estate sector and for those looking.

According to the latest figures from the Mortgage Bankers’ Association, the Market Composite Index, which is a measure of mortgage loan application volume, fell by 1.1% in the week ending 16^th March, with the Refinance Index sliding by 5% from the previous week.

The slide in the Refinance Index left the refinance share of mortgage activity at just 38.5%, down from the previous week’s 40.1% to the lowest level since Sep-08.

Homeowners looked to have got it right this time around, with the FED’s forward guidance on monetary policy and improving labor market and economic conditions, amidst a low inflationary environment providing the most favorable conditions for homeowners looking to refinance and obtain better rates before the mortgage rate environment takes a steeper path to normalization. Fixed rates are certainly the way forward when looking ahead to next year and 2020.

For those looking to purchase a home, while the FED held it’s 3 rate hike projection for the current year, the June projections could paint a materially different picture should economic conditions continue to improve. If the FED does pencil in a 4^th rate hike in the June projections, coupled with the already more hawkish rate paths for next year and for 2020, home buyers can expect mortgage rates to begin to make a move through 5% and they may even look to touch 6% in 2020.

There’s certainly enough reason to make the move sooner rather than later, particularly when considering the fact that mortgage rates have only declined once in the last eleven weeks.

For the week ahead, the FED’s preferred inflationary metric, Core PCE Price Index figures are scheduled for release on Thursday, which will certainly have an influence on yields and near-term sentiment towards both monetary policy and mortgage rates, though President Trump may pin back yields for another week, if the trade war chatter persists into Good Friday.