U.S Mortgage Rates Rise as Optimism Drives Yields

Mortgage rates were on the rise and could see further upside should the equity markets hold steady. Optimism over trade provided support last week.
Bob Mason
Upscale modern house for sale

Mortgage rates increased by just 1 basis point in the week ending 26th December. In the week prior, mortgage rates had held steady at 3.73%.

While rates were up in the week, 30-year rates continued to hold 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 81 basis points.

30-year fixed rates are also down by 120 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

It was a particularly quiet week on the economic calendar. Key stats included November core durable goods orders and durable goods orders on Monday and the weekly jobless claims figures on Thursday.

In November, core durable goods orders stalled, following a 0.1% rise in October, while durable goods orders slid by 2%. In October, durable goods orders had risen by just 0.2%.

On Thursday, initial jobless claims came in at 222k, falling back from the previous week’s 235K.

From the housing sector, a jump in new home sales was also positive on Monday. In November, new home sales rose by 1.3%.

The upside in mortgage rates came in spite of the disappointing durable goods orders, with positive sentiment towards trade supporting risk appetite.

In the week, the U.S equity markets hit fresh record highs, supporting an uptick in U.S Treasury yields and ultimately mortgage rates.

Freddie Mac Rates

The weekly average rates for new mortgages as of 26th December were quoted by Freddie Mac to be:

  • 30-year fixed rates increased by 1 basis point to 3.74% in the week. Rates were down from 4.55% from a year ago. The average fee remained unchanged at 0.7 points.
  • 15-year fixed rates remained unchanged at 3.19% in the week. Rates were down from 4.01% from a year ago. The average remained unchanged at 0.7 points.
  • 5-year fixed rates increased by 8 basis points to 3.45% in the week. Rates were down by 55 basis points from last year’s 4.00%. The average fee fell from 0.4 points to 0.3 points.

For the year, 30-year fixed mortgage rates averaged 3.9%, the 4th lowest since when records began, back in 1971.

According to Freddie Mac, low mortgage rates and the improving economy will be key drivers for the housing market going into 2020. The housing market has seen steady increases in home sales, construction, and home prices.

While the outlook is bright, worsening housing affordability has spread and remains a threat to the continuing recovery in the sector and to the economy.

Mortgage Bankers’ Association Rates

For the week ending 20th December, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 3.79% to 3.87%. Points fell from 0.36 to 0.33 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances rose from 3.98% to 3.99. Points remained unchanged 0.33 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 3.96% to 3.97%. Points decreased from 0.26 to 0.25 (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, decreased by 5.3% in the week ending 20th December. In the week ending 13th December, mortgage applications had fallen by 5.0%.

The Refinance Index fell by 5% in the week, following on from 7% fall in the week in the week ending 13th December. The Refinance Index was up by 128% from the same week a year earlier.

The share of refinance mortgage activity increased from 62.2 to 62.6% in the week, reversing a fall from 62.4% to 62.2% in the week prior.

According to the MBA, U.S Treasury yields were on the rise, with stronger home building activity and consumer spending providing support.

The resulting upswing in mortgage rates left conventional refinance application volumes down by 11%.

It was also noted that this is the slowest time of the year for the purchasing market. While down, after seasonal adjustments, applications were still up by around 5% year-on-year.

An increase in construction activity should boost housing inventories. This should translate into rising purchase volumes going into 2020.

For the week ahead

It’s a relatively busy week ahead.

From the U.S, key stats include November trade data and U.S pending home sales figures on Monday and consumer confidence figures on Tuesday.

Chicago PMI numbers for December will also influence in the early part of the week.

On Thursday, the weekly jobless claims figures will also be in focus, while we expect October house price figures to have a muted impact.

From elsewhere, December private sector PMI numbers due out of China will also influence risk sentiment and U.S Treasuries.

On the geopolitical front, sentiment towards Brexit and the Phase 1 trade agreement between the U.S and China will also need considering.

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