U.S Mortgage Rates Rise for the 1st Time in 3-Weeks

Mortgage rates were on the rise in the week ending 18^th February. After having held steady for 2 consecutive weeks, 30-year fixed rates rose by 8 basis points to 2.81%.

Compared to this time last year, 30-year fixed rates were down by 68 basis points.

30-year fixed rates were down by 213 basis points since November 2018’s last peak of 4.94%.

Economic Data from the Week

It was a relatively busy first half of the week on the economic data front.

Key stats from the U.S included NY Empire State Manufacturing, retail sales, and industrial production numbers.

The stats were skewed to the positive in the week.

The NY Empire State Manufacturing Index rose from 3.5 to 12.1 in February to set the tone on Tuesday.

Retail sales figures impressed on Wednesday, with core retail sales rising by 5.9% in January. Retail sales increased by 5.3%. Both came in well ahead of forecasts, while also reversing declines from December.

Industrial production also continued to see a pickup, rising by 0.9% in January. In December, production had risen by 1.3%.

On the monetary policy front, the FOMC meeting minutes were also in focus on Wednesday. Members were aligned on leaving policy unchanged for the foreseeable future whilst also agreeing that the pace of the economic recovery had moderated.

In spite of this, U.S Treasury yields were on the rise, supporting the uptick in mortgage rates.

Freddie Mac Rates

The weekly average rates for new mortgages as of 18^th February were quoted by Freddie Mac to be:

• 30-year fixed rates increased by 8 basis points to 2.81% in the week. This time last year, rates had stood at 3.49%. The average fee remained steady at 0.7 points.

• 15-year fixed rates rose by 2 basis points to 2.21% in the week. Rates were down by 78 basis points from 2.99% a year ago. The average fee rose from 0.6 points to 0.7 points.

• 5-year fixed rates rose by 2 basis point 3.77%. Rates were down by 48 points from 3.25% a year ago. The average fee remained unchanged at 0.2 points.

According to Freddie Mac,

• Economic spending has improved, due to the most recent stimulus, but supply chain shortages are causing downstream inflation. This has contributed to higher mortgage rates.
• While there are multiple temporary factors driving up rates, the underlying economic fundamentals point to rates remaining in the low 3% range for the year.

Mortgage Bankers’ Association Rates

For the week ending 12^th February, the rates were:

• Average interest rates for 30-year fixed to conforming loan balances increased from 2.62% to 2.98%. Points increased from 0.36 to 0.43 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA decreased from 2.97% to 2.93%. Points rose from 0.36 to 0.37 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances remained unchanged at 3.11%. Points increased from 0.29 to 0.35 (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 5.1% in the week ending 12^th February. In the previous week, the index had fallen by 4.1%.

The Refinance Index slid by 5.0% and was 51% higher than the same week a year ago. The index had fallen by 4.0% in the week prior.

In the week ending 12^th February, the refinance share of mortgage activity fell from 70.2% to 69.3%. In the week prior, the share had fallen from 71.4% to 70.2%.

According to the MBA,

• Expectations of faster economic growth and inflation continue to push Treasury yields and mortgage rates higher.
• Since hitting a survey low in December, 30-year fixed rates hit its highest level since November 2020.
• The uptick in rates has slightly dampened refinance activity, with the MBA’s index falling for a 2^nd consecutive week.
• Also noteworthy is the overall share of refinancing mortgages falling below 70% for the first time since last October.
• Low inventory and higher prices continue to constrain the housing market in early 2021.
• Purchase activity is still strong, however, and is up by 15% from last year.
• Average loan sizes hit another survey high of $412,200.

For the week ahead

It’s a quiet first half of the week on the U.S economic calendar. Consumer confidence figures for February are due out on Tuesday.

The lack of stats will leave FOMC member commentary, chatter from Capitol Hill, and COVID-19 news in focus.