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U.S mortgage rates took a pause, following the previous week’s jump in mortgage rates to the highest level since April 2011, with 30-year fixed mortgage rates easing back by just 5 basis points to 4.85% in the week ending 18th October, according to Freddie Mac’s latest weekly report.

Key stats through the week were mixed, better than expected manufacturing data out of NY State and Philly easing concerns of a possible near-term slowdown in the U.S economy going into the 4th quarter, with September industrial production numbers also holding firm, while housing sector data continued to raise red flags, alongside weaker than expected retail sales figures.

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While the numbers were ultimately skewed to the negative for yields, the FOMC meeting minutes released on Wednesday provided an uptick in 10-year Treasury yields, with the minutes revealing a more hawkish than anticipated FED that may ultimately move beyond neutral on rates to pin back the U.S economy from overheating.

For prospective homebuyers, the good news was the weaker housing sector numbers, with existing home sales sliding 3.4% in September, following a 0.2% fall in August, the slide to a 3-year low expected to put further pressure on U.S house prices that have seen price growth deceleration and in certain states decline.

A continued rise in mortgage rates and fall in rental rates amidst the current labour market environment could have a material impact on house prices should supply rise further, though looking at the latest housing starts and building permit figures for September, a 5.3% slide in housing starts will continue to raise questions over supply, with September building permits also seeing red off the back of August’s 5.7% slide.

Freddie Mac weekly average rates for new mortgages as of 18th October were quoted to be:

  • 30-year fixed rate loan eased from 4.90% to 4.85% in the week, while up from 3.82% a year ago. The average fee remained unchanged at 0.5 points.
  • 15-year fixed rates slipped from 4.29% to 4.26% in the week, while up from 3.19% from a year ago. The average fee fell from 0.5 points to 0.4 points.
  • 5-year fixed rates increased from 4.07% to 4.10% in the week and up from last year’s 3.17%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 12th October were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, increased from 4.98% to 4.99%, its highest level since April 2011, with points increasing from 0.63 to 0.69 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances increased from 5.05% to 5.10%, its highest level since February 2011, with points rising from 0.51 to 0.55 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 4.99% to 4.98%, with points decreasing from 0.35 to 0.34 (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, slid by 7.1% in the week ending 12th October following on from the previous week’s 1.7% decline, week-on-week.

The Refinance Index slid by 9%, in the week ending 12th October, following the previous week’s 3% fall, with the share of refinance mortgages sliding from 39.4% to 38.1%.

The Mortgage Bankers Association also released its forecasts for mortgage originations for 2019 on 16th October.

  • The MBA expect to see $1.24tn in purchase mortgage originations in 2019 – a 5.2% increase from 2018.
  • Refinance mortgages are expected to continue on a downward trend, with forecasts pointing to a 12.4% slide to $395bn.
  • Overall in 2019, total mortgage applications are forecasted to decrease from $1.64tn to $1.63tn, with originations forecasted to hit $1.27tn in 2020, with refinance originations of $410, for a total of $168tn.

The upward projections were supported by the unemployment rate at its lowest level in almost 50-years and with a deceleration in the rate of home price growth giving income growth an opportunity to catch up, the shift expected to offset the upward trend in interest and mortgage rates.

For the week ahead, it’s another busy week on the economic calendar, with October’s prelim private sector PMI numbers and September durable goods orders due out ahead of Friday’s 3rd quarter GDP figures, solid numbers expected to provide further support to yields.

From the housing sector, September new home sales and pending home sales are scheduled for release, with new home sales forecasted to take a dive and pending home sales to also see red, to add to the sector’s woes.

Outside the stats, geo-political risk will continue to influence, the Saudi’s admission of Kashoggi’s murder in their Turkish consulate expected to lead to a U.S response that could weigh on risk appetite further, the mid-term elections rapidly approaching and the U.S – China trade war showing no signs of abating. A risk-off week would provide some further respite to prospective home owners, though a shift in the FED’s outlook on policy would ultimately be needed for the outlook for mortgage rates to improve for home buyers.

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