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U.S Mortgage Rates Surge Again as Lenders Look to Tank Demand

Lenders rack up mortgage rates once more to curb demand. The spread of the coronavirus will likely see, both demand and rates begin to fall.
Bob Mason
Interest Rates

Mortgage rates continued to defy gravity in the week ending 19th March, with 30-year fixed rates rising for a 2nd consecutive week.

Despite the continued spread of the coronavirus across the U.S and risk aversion, 30-year fixed rates surged by 29 basis points to 3.65%.

The upside in the week was attributed to a lack of capacity to meet an even greater surge in demand for new mortgages and refinance applications. Lenders cranked up lending rates in yet another bid to curb applications.

Shutdowns in various parts of the country would certainly not have helped with the capacity issues lenders have faced.

Compared to this time last year, 30-year fixed rates were down by 63 basis points.

30-year fixed rates were down by 129 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data took a back seat once more in through the 1st half of the week. Government steps to combat the spread and economic impact of the coronavirus on the U.S economy remained the key driver.

While the stats took a back seat, a jump in the U.S initial jobless claims to 287k and slide into contraction in NY State and Philly manufacturing sectors were negatives.

The Philly FED Manufacturing Index tumbled from 36.7 to -12.7 in March, with the NY Empire State Manufacturing Index falling from 12.9 to -21.5.

We are expecting the stats to begin to have a greater impact in the coming weeks, now that the government and the FED are active.

Outside of the numbers, the FED shocked the global financial markets at the start of the week. The FED slashed rates to zero while delivering $700bn in QE to combat the effects of the coronavirus. The surprise moved led to a tumble in riskier assets at the start of the week.

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Freddie Mac Rates

The weekly average rates for new mortgages as of 19th March were quoted by Freddie Mac to be:

  • 30-year fixed rates jumped by 29 basis points to 3.65% in the week. Rates were down from 4.28% from a year ago. The average fee remained unchanged at 0.7 points.
  • 15-year fixed also surged by 29 basis points 3.06% in the week. Rates were down from 3.71% compared with a year ago. The average fee held steady at 0.7 points.
  • 5-year fixed rates increased by 10 basis points to 3.11% in the week. Rates were down by 73 points from last year’s 3.84%. The average fee remained unchanged at 0.2 points.

According to Freddie Mac, lenders increased prices to help manage skyrocketing refinance demand. With lenders working their way through backlogs, this is expected to be a short-term spike in rates.

On the purchase front, daily loan applications had been on the rise since mid-February before starting to decline late last week.

Mortgage Bankers’ Association Rates

For the week ending 13th March, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 3.57% to 3.71. Points increased from 0.25 to 0.28 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances increased from 3.47% to 3.74%. Points increased from 0.27 to 0.37 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances rose from 3.58% to 3.77%. Points rose from 0.20 to 0.32 (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 8.4% on the week ending 13th March. In the previous week, the Index had jumped by 55.4% to its highest level since Apr-09.

The Refinance Index slid by 10% from the previous week and was 402% higher than the same week a year ago. In the previous week, the Index had surged by 79% to its highest level since Apr-09.

The refinance share of mortgage activity fell from 76.5% to 74.5% in the week ending 13th March. In the week prior, the refinance share had increased from 66.2% to 76.5%.

According to the MBA:

  • The ongoing situation around the coronavirus led to further stress in the financial markets.
  • This led to unprecedented volatility and widening spreads, which drove mortgage rates back to their highest level since mid-February.
  • Rising mortgage rates contributed to the decline in refinance applications.
  • Refinance activity remains very high, however.
  • The FED rate cut and other monetary policy measures to help the economy should bring down mortgage rates in the coming weeks.
  • This should, in turn, fuel further demand for refinances, particularly with households looking to increase disposable income and savings.
  • For purchase activity, while up by 10% from a year ago, a gloomier outlook could pin back activity near-term.

For the week ahead

It’s relatively busy 1st half of the week for the Greenback.

Prelim March private sector PMI numbers are due out on Tuesday, which will have a material influence on risk appetite.

On Wednesday, durable goods orders for February and the weekly jobless claims figures on Thursday will also provide direction.

Outside of the stats, updates on the coronavirus and how successful the U.S government has been to contain the spread will be key.

Stricter measures to contain the spread could lead to a more negative outlook towards the economy, which would support a pullback in mortgage rates.

Much will depend on whether Lenders have worked through the backlog. Freddie Mac had noted that applications were falling over the last week, which should have helped…

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