U.S Mortgages – 5 in a Row Brings 5% into View

Mortgage rates rose for a 5th consecutive week last week, with the FED’s policy outlook contributing to the uptick in U.S 10-year Treasury yields.
Bob Mason

U.S mortgage rates rose for a 5th consecutive week, in the week ending 27th September, with mortgage rates hitting their highest levels since the beginning of April 2011, when rates were sitting at 4.78%, according to figures released by Freddie Mac.

Contributing to the week’s upward momentum was a hawkish FED that pencilled in a continuation of this year’s quarterly hikes through next, while also upwardly revising U.S economic growth projections. The bond markets took a breather from the ongoing trade war with China, in spite of China pulling out of planned talks on trade following the roll out of fresh tariffs on Chinese goods last Monday.

The performing U.S economy along with tight labour market conditions have certainly contributed, with consumer confidence continuing to sit at 18-year highs. Things could get messy however, should the U.S – China trade war begin to impact labour market conditions and mortgage rates continue to head towards 5%.

Economic data released through to Thursday included finalized 2nd quarter GDP numbers and September consumer confidence figures that provided support, with August durable goods order numbers also a positive, while September private sector PMIs rolled out and suggesting slower productivity at the end of the 3rd quarter.

For the real estate market, July house prices rose by 5.9% year-on-year, according to the S&P / CS HPI Composite – 20, easing back from a 6.4% rise in June. The easing in house price growth was largely expected, with mortgage rates on the rise and affordability weighing on demand, though support had continued to come from a lack of inventories.

New home sales jumped by 3.5% in August, reversing July’s 1.6% fall, while pending home sales continued to fall, down 1.8% off the back of a 0.8% in July. The mixed numbers will raise further questions on what lies ahead for the sector, falling prices likely to see home owners look to sell-out, recent stats certainly raising some early red flags. Labour market stability will now be the key for the housing market to avoid a correction going into 2019 and for now, mortgage applications seem to be unaffected by the upward trend in mortgage rates.

Freddie Mac weekly average rates for new mortgages as of 27th September were quoted to be:

  • 30-year fixed rate loan increased from 4.65% to 4.72% in the week, while up from 3.83% a year ago. The average fee remained unchanged at 0.5 points.
  • 15-year fixed rates rose from 4.11% to 4.16% in the week, while up from 3.13% from a year ago. The average fee remained unchanged at 0.5 points.
  • 5-year fixed rates increased from 3.92% to 3.97% in the week and up from last year’s 3.20%. The average fee eased back from 0.4 points to 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 21st September were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 4.90% to 4.94%, with points increasing from 0.73 to 0.83 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances increased from 4.88% to 4.97%, its highest level since April 2011, with points rising from 0.44 to 0.47 (incl. origination fee) for 80% LTV loans..
  • Average 30-year rates for jumbo loan balances increased from 4.77% to 4.92%, with points increasing from 0.28 to 0.30 (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, rose by 2.9%, following on from the previous week’s 1.6% increase, week-on-week.

The Refinance Index increased by 3%, in the week ending 21st September, partially reversing the previous week’s 4% rise, with the share of refinance mortgages rising from 39.0% to 39.4%.

Multifamily mortgage debt figures were also released in the week, with outstanding debt rising to $1.3tn according to the MBA, an increase of $20bn or 1.6% in the 2nd quarter, quarter-on-quarter. The level of commercial / multifamily mortgage debt outstanding increased by $52.3bn to $3.27tn, with all 4 major investor groups seeing an increase.

The increase in mortgage debt on commercial and multifamily properties grew faster in the first half of 2018 than at any other time since the first half of 2007.

For the week ahead, it’s nonfarm payroll week, the ADP numbers on Wednesday in focus, with September private sector PMI numbers and the weekly jobless claims figures also there to provide direction ahead of Thursday’s mortgage rate updates and Friday’s official labour market numbers. Any weakness in the ISM private sector numbers and yields could pullback, with geo-political risk on the rise as the Italian government looks to take on The Establishment as trade jitters linger.

The FED has put mortgage rates back on an upward path and, barring any disastrous stats, it may ultimately boil down to political events in the week ahead on whether rates can rise for a 6th consecutive week.

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