U.S Mortgage Rates Rise in the Final Week of the Year

Mortgage rates failed to fall to a 17^th record low of the year, with 30-year fixed rates on the rise in the final week of the year. 30-year fixed rates rose by 1 basis point to 2.67% in the week ending 31st December.

Compared to this time last year, 30-year fixed rates were down by 105 basis points.

30-year fixed rates were also down by 227 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the lighter side in the 1^st half of the week.

November goods trade data and pending home sales were in focus along with Chicago PMI numbers for December.

Pending home sales fell by 2.6%, following a 0.90% decline in October. Also negative was a widening in the trade deficit from $80.42bn to $84.82bn.

On the positive, however, was a rise in the Chicago PMI from 58.2 to 59.5.

Low mortgage rates and tight inventories continued to support house prices. In October, the S&P/CS HPI Composite – 20 n.s.a rose by 7.9% year-on-year. In September, the house price index had risen by 6.6%.

Freddie Mac Rates

The weekly average rates for new mortgages as of 31^st December were quoted by Freddie Mac to be:

• 30-year fixed rates rose by 1 basis point to 2.67% in the week. This time last year, rates stood at 3.72%. The average fee remained steady at 0.7 points.

• 15-year fixed rates fell by 2 basis points to 2.17% in the week. Rates were down by 99 basis points from 3.16% a year ago. The average fee rose from 0.5 points to 0.7 points.

• 5-year fixed rates fell by 8 basis points to 2.71%. Rates were down by 75 points from 3.46% a year ago. The average fee rose from 0.2 points to 0.4 points.

According to Freddie Mac,

• A more than 1% drop in mortgage rates over the year drove housing market activity in 2020.
• Moving into 2021, Freddie Mac expects rates to remain flat, potentially rising off their record low.
• Solid purchase demand and tight inventory will continue to put pressure on housing markets as well as house price growth.

Mortgage Bankers’ Association Rates

Numbers for the week ending 25^th December and 1^st January will be available on 6^th January 2021.

For the week ending 18^th December, the rates were:

• Average interest rates for 30-year fixed to conforming loan balances increased from 2.85% to 2.86%. Points remained unchanged at 0.33 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed, backed by the FHA, decreased from 2.96% to 2.90%. Points fell from 0.42 to 0.32 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 3.12% to 3.10%. Points decreased from 0.33 to 0.29 (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 0.8% in the week ending 18^th December. In the week prior, the Index had risen by 1.1%.

The Refinance Index increased by 4% and was 124% higher than the same week a year ago. In the week prior, the index had risen by 1%.

The refinance share of mortgage activity rose from 72.7 to 74.8%. In the previous week, the share had increased from 72.0% to 72.7%.

For the week ahead

It’s a busier week on the U.S economic calendar.

Key stats include December’s ISM Manufacturing PMI and finalized Markit survey private sector PMIs.

Factory orders and ADP employment change figures will also draw attention in the 1^st half of the week.

From elsewhere, expect private sector PMI numbers from China to also influence.

Away from the economic calendar, COVID-19 and updates from Capitol Hill will also influence U.S Treasury yields.