U.S Mortgage Rates Rise Again Supported by Progress in Trade TalksMortgage rates saw further upside in the week as the U.S and China made progress on trade. Expect geopolitics to have more influence in the week ahead.
Mortgage rates rose again in the week ending 31st October. 30-year fixed rates rose by 3 basis points to 3.78%, following on from a 6 basis point rise in the week prior.
In spite of the uptick, 30-year rates remained relatively close to levels last seen in early November of 2016, according to figures released by Freddie Mac.
Compared to this time last year, 30-year fixed rates were down by 105 basis points.
More significantly, 30-year fixed rates are down by 116 basis points since last November’s most recent peak of 4.94%.
Economic Data from the Week
Economic data was on the busier side in the week.
Positives supporting an uptick in yields included a narrowing in the U.S trade deficit on Monday, a jump in pending home sales on Tuesday and better than anticipated GDP numbers for the 3rd quarter on Wednesday.
On Tuesday, a slight easing in consumer confidence had a relatively muted impact ahead of the FED’s interest rate decision on Wednesday.
While the FED cut rates for a 3rd consecutive month, the FOMC Rate Statement suggested the FED would hit pause on any further policy easing. The more hawkish statement prevented a pullback in yields, leaving geopolitics to provide support.
The EU’s approval of the Brexit extension request and Parliamentary vote in favor of a 12th December General Election was risk positive.
Progress towards a phase 1 trade agreement between the U.S and China also supported an uptick in mortgage rates in the week.
Things were different in the latter part of the week as negative news on trade hit the wires. News of Beijing casting doubts over the prospects of a longer-term trade agreement weighed.
Freddie Mac Rates
The weekly average rates for new mortgages as of 31st October were quoted by Freddie Mac to be:
- 30-year fixed rates increased by 3 basis points to 3.78% in the week. Rates were down from 4.83% from a year ago. The average fee held steady at 0.5 points.
- 15-year fixed rates rose by 1 basis point to 3.19% in the week. Rates were down from 4.23% from a year ago. The average fee rose from 0.5 points to 0.6 points.
- 5-year fixed rates increased by 3 basis points to 3.43% in the week. Rates were down by 61 basis points from last year’s 4.04%. The average fee rose from 0.3 points to 0.4 points.
According to Freddie Mac, rates rose for a 3rd consecutive week for the first time since April. While purchase activity remains strong, driven by homebuyer demand, a lack of supply continues to a major barrier to the sector and the overall economy.
Mortgage Bankers’ Association Rates
For the week ending 25th October, rates were quoted to be:
- Average interest rates for 30-year fixed, backed by the FHA, increased from 3.79% to 3.83%. Points increased from 0.26 to 0.28 (incl. origination fee) for 80% LTV loans.
- Average interest rates for 30-year fixed with conforming loan balances rose from 4.02% to 4.05%. Points decreased from 0.38 to 0.37 (incl. origination fee) for 80% LTV loans.
- Average 30-year rates for jumbo loan balances increased from 3.96% to 4.01%. Points remained unchanged at 0.30 (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, increased by 0.6% in the week ending 25th October. In the week ending 18th October, the Market Composite Index had fallen by 11.9%.
The Refinance Index fell by 1% in the week ending 25th October, leaving the index up by 134% from a year earlier. The Index had fallen by 17% in the week ending 18th October.
The share of refinance mortgage activity declined from 58.5 to 58.0%, in the week, following on from a fall from 62.2% to 58.5% in the week prior.
According to the MBA, 10-year Treasury yields rose slightly in the week. Support came from news of progress in trade talks between the U.S and China.
A 2nd consecutive weekly rise in mortgage rates saw 30-year fixed rates hit their highest level since the end of July.
Mortgage applications were largely unchanged, with purchase activity rising 2% and refinances decreasing by less than 1%.
Year-on-year, purchase applications continued to rise at a stronger pace than in 2018, up by 10%. Expectations are for applications to continue to rise, supported by low mortgage rates relative to last year.
For the week ahead
It’s another relatively busy week on the economic data front.
Key stats through the 1st half of the week include September factory orders and October Service sector PMI numbers. Factory orders are due out on Monday, with PMIs on Tuesday.
We would expect the market’s preferred ISM non-manufacturing PMI to have the greatest impact.
On Wednesday, 3rd quarter nonfarm productivity and unit labor cost figures will also influence.
Barring dire numbers, we would expect September trade data and the weekly initial jobless claims due out on Tuesday and Thursday to have a muted impact on rates.
From outside of the U.S, October service sector PMI numbers due out of China on Tuesday will also influence.
On the geopolitical front, chatter from Beijing and Washington on trade will need to be monitored. There is also UK politics to consider.