U.S Mortgage Rates Tumble as Trade War Angst Bites

Mortgage rates tumbled by 15 basis points in the week ending 8^th August. 30-year fixed rates slid to 3.60% following a hold at 3.75% in the week ending 1^st August.

The 15 basis point fall left 30-year rates back at their lowest level since late 2016 according to figures released by Freddie Mac.

Compared to this time last year, 30-year fixed rates were down by 100 basis points.

More significantly, 30-year fixed rates are down by 134 basis points since last November’s most recent peak of 4.94%. The weekly slide also left mortgage rates at their lowest level since the month of Trump’s inauguration…

Economic Data from the Week

Key stats out of the U.S through the 1^st half of the week were on the lighter side.

On Monday, Service PMI figures for July were in focus. Whilst the Markit survey showed that service sector activity picked up in July, the market’s preferred ISM Survey weighed.

The ISM non-manufacturing PMI fell from 55.1 to 53.7 in July, signaling weaker U.S economic growth at the turn of the quarter.

On Wednesday, the JOLTs job opening figures for June were also disappointing, with job openings falling from 7.384m to 7.348m.

With the stats skewed to the negative, concerns over the prospects of a U.S recession rose through the week. An escalation in the U.S – China trade war led to a slide in U.S Treasury yields. Following Trump’s call for fresh tariffs in the week ending 2^nd August, China responded with the PBoC allowing the Yuan to slide beyond CNY7 at the start of the week.

While the Yuan found the support of the PBoC through the rest of the week, Monday’s move demonstrated China’s unwillingness to yield.

Freddie Mac Rates

The weekly average rates for new mortgages as of 8^th August were quoted by Freddie Mac to be:

• 30-year fixed rates slid by 15 basis points to 3.60% in the week. Rates were down from 4.59% from a year ago. The average fee held steady at 0.6 points.

• 15-year fixed rates also slid by 15 basis points to 3.05% in the week. Rates were down from 4.05% from a year ago. The average fee also held steady at 0.5 points.

• 5-year fixed rates fell by 10 basis point to 3.36% in the week. Rates were down by 54 basis points from last year’s 3.90%. The average fee fell from 0.4 points to 0.3 points.

According to Freddie Mac, while business sentiment continued to deteriorate, consumer sentiment remained solid. The strong labor market environment and low rates are anticipated to support the housing market through to the fall.

Mortgage Bankers’ Association Rates

For the week ending 2^nd August, rates were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.94% to 3.86%. Points increased from 0.29 to 0.38 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances fell from 4.08% to 4.01%. Points increased from 0.34 to 0.37 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances declined from 4.04% to 3.96%. Points increased from 0.22 to 0.26 (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 5.3% in the week ending 2^nd August. The bounce reversed a 2% fall in the week ending 26^th July.

The Refinance Index surged by 12% to leave the index 112% higher year-on-year. The surge followed a 0.1% increase in the week ending 26^th July.

The share of refinance mortgage activity increased from 50.5% to 53.9%, following on from a rise from 49.8 to 50.5 in the week prior.

According to the MBA, negative sentiment towards the U.S – China trade war had a greater impact than the latest FED rate cut, with the slide in Treasury yields weighing on mortgage rates. Refinance applications will likely to continue to rise in the weeks ahead. The MBA also noted that 30-year fixed rates fell to their lowest level since November 2016. The refinance index hit its highest level over the same period as a result.

In spite of the slide in mortgage rates, home buyer applications fell in the week as concerns over the economic outlook led to tighter credit conditions.

In the week, the MBA also released its Mortgage Credit Availability Report. According to the MBA report,

• The Mortgage Credit Availability Index (MCAI) fell by 0.4% to 189.0 in July, reflecting tighter lending standards.
• Declines in the conforming (-0.8%) and government(-1.0%) indices weighed on the MCAI in July.

For the week ahead

It’s a relatively quiet first half of the week ahead.

July inflation figures are due out on Tuesday. With the markets expecting another rate cut by the FED near-term, driven by an escalation in the U.S – China trade war, we can expect Treasury yields to be particularly sensitive to the numbers.

Out of China, industrial production figures due out on Wednesday will also test the markets. Any weak numbers and expect demand for the safe havens to surge.

Outside of the numbers

Geopolitical risk will continue to overshadow any positive stats. On Friday, U.S President Trump stated that the U.S was not ready to do a trade deal with China. Trump also said that the U.S was not prepared to do business with Huawei…

We can expect chatter over the weekend and any further response by China at the start of the week to set the tone.