U.S Mortgage Rates Resume the Decline as Economic Woes BuildMortgage rates resumed their downward trend, as the U.S – Trade war takes a bigger bite. An escalation in the trade war should deliver more downside.
Mortgage rates resumed their decline in the week ending 22nd August. 30-year fixed rates fell by 5 basis points to 3.55% following a hold at 3.6% in the week prior.
The fall left 30-year rates at their 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 96 basis points.
More significantly, 30-year fixed rates are down by 139 basis points since last November’s most recent peak of 4.94%.
Economic Data from the Week
Key stats out of the U.S through the 1st half of the week were on the lighter side once more.
Economic data was limited to July existing home sales figures on Wednesday. A jump in sales, supported by the downward trend in mortgage rates, had little impact on yields, however.
The main event of the week was the release of the FOMC meeting minutes on Wednesday. While the minutes outlined a FED willing to deliver further easing should the need arise, there was a lack of commitment.
A brief 2-year – 10-year U.S Treasury yield curve inversion resulted that contributed to the fall in mortgage rates on the week.
Adding to the demand for U.S Treasuries were market jitters over the prospects of an economic recession.
Freddie Mac Rates
The weekly average rates for new mortgages as of 22nd August were quoted by Freddie Mac to be:
- 30-year fixed rates fell by 5 basis points to 3.55% in the week. Rates were down from 4.49% from a year ago. The average fee remained unchanged at 0.5 points.
- 15-year fixed rates decreased by 4 basis points to 3.03% in the week. Rates were down from 3.98% from a year ago. The average fee also held steady at 0.5 points.
- 5-year fixed rates fell by 3 basis point to 3.32% in the week. Rates were down by 50 basis points from last year’s 3.82%. The average fee held steady at 0.3 points.
According to Freddie Mac, falling mortgage rates continued to support the real estate market and economy. Home purchase demand was up 5% from a year ago and materially stronger since the early summer. Refinances surged to their highest share in three and a half years.
For the U.S economy, the good news is a pickup in monthly cash flow and upward momentum in home equity.
Mortgage Bankers’ Association Rates
For the week ending 16th August, rates were quoted to be:
- Average interest rates for 30-year fixed, backed by the FHA, increased from 3.81% to 3.87%. Points increased from 0.29 to 0.32 (incl. origination fee) for 80% LTV loans.
- Average interest rates for 30-year fixed with conforming loan balances fell from 3.93% to 3.90%. Points remained unchanged at 0.35 (incl. origination fee) for 80% LTV loans.
- Average 30-year rates for jumbo loan balances remained unchanged at 3.88%. Points also held steady at 0.24 (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, fell by 0.9% in the week ending 16th August. In the week ending 9th August, the Market Composite Index had surged by 21.7%.
The Refinance Index increased by 0.4% in the week ending 16th August. The gain followed on from a 37% surge to the highest level since Jul-16 in the week ending 9th August. Year-on-year, the index was by 180%.
The share of refinance mortgage activity increased from 61.4% to 62.7%, following on from a rise from 53.9% to 61.4% in the week prior.
According to the MBA, market jitters over global economic growth drove demand for U.S Treasuries, leaving yields down by 13 basis points. Purchase applications fell by more than 3% in the week, while up by 5% year-on-year.
In the week, the MBA also released its Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. According to the MBA report,
- Commercial and multifamily mortgage loan originations were 10% higher in the 2nd quarter, year-on-year. Quarter-on-quarter, originations were up by 29%.
- Year-on-year, multifamily property originations rose by 15% and by 32% quarter-on-quarter.
For the week ahead
It’s a busier first half of the week ahead.
Key stats due out of the U.S include July durable goods orders and August consumer confidence figures due out on Monday and Tuesday.
With heightened sensitivity, we can expect both sets of numbers to influence Treasury yields at the start of the week.
Outside of the numbers
An escalation in the U.S – China trade war on Friday and Trump’s Twitter Tantrum will test market resilience at the start of the week.
Expect updates from the G7 Summit to also be a factor. It remains to be seen whether Trump and Xi can settle their differences ahead of their planned gettogether next month.