U.S Mortgages – Applications Slide in Spite of Retreating Rates

Mortgage rates saw the downward trend continue in the week ending 20^th December, with 30-year fixed falling by 0.01 percentage points to a 3-month low 4.62%.

The fall in 30-year fixed to 4.63%, the lowest level since 12^th September’s 4.60%, comes off the back of 6 consecutive weeks of either flat or falling mortgage rates, though the continued fall in rates may not be enough for the housing sector, with the sell-off in the U.S equity markets and ever increasing concerns over the economic outlook pinning back mortgage applications.

Through the week, the Dow slid an impressive 6.87% and the NASDAQ and even more impressive 8.36%, with pressure coming from the prospects of a government shutdown, a reflection of Trump’s wall aspirations and unwillingness to meet common ground with the Democrats and just about anyone else for that matter and concerns over the economic outlook, the effects of the ongoing trade war between the U.S and China beginning to show in economic indicators out of the U.S.

Through the week, the FED’s rate hike on Wednesday was priced in, but FED Chair Powell’s hawkish outlook was not, causing more chaos in the equity markets, driving demand for U.S Treasuries to pin back yields, with the projected rate path for next year easing back to 2 rate hikes from a previously projected 3.

On the housing front, there was some positive news, with building permits, housing starts and existing home sales all coming in ahead of expectations in November, with building permits and housing starts reversing October losses with interest.

Looking at manufacturing PMI numbers however, the bounce in building permits and housing starts may have come a little late, with a marked slowdown in manufacturing activity an ominous sign for the U.S economy.

Freddie Mac weekly average rates for new mortgages as of 20^th December were quoted to be:

• 30-year fixed rate loan fell from 4.63% to 4.62% in the week, while up from 3.94% a year ago. The average fee fell from 0.5 to 0.4 points.
• 15-year fixed rates remained unchanged at 4.07% in the week, while up from 3.38% from a year ago. The average fee eased back from 0.5 points to 0.4 points.
• 5-year fixed rates decreased from 4.04% to 3.98% in the week, while up from last year’s 3.39%. The average fee held steady at 0.3 points.

Mortgage Bankers’ Association Rates for the week ending 14^th December were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.97% to 4.95%, the lowest level since Sept-18, with points decreasing from 0.55 to 0.51 (incl. origination fee) for 80% LTV loans.
• Average interest rates for 30-year fixed with conforming loan balances decreased from 4.96 to 4.94 the lowest level since Sept-18, with points decreasing from 0.48 to 0.43 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 4.80% to 4.74%, the lowest level since Sept-18, with points falling from 0.33 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, slid by 5.8% in the week ending 14^th December, reversing the previous week’s 1.6% rise, week-on-week.

The Refinance Index fell by 2%, in the week ending 14^th December, reversing the previous week’s 2% rise, with the share of refinance mortgages increasing from 41.5% to 43.5%, the highest share of applications since February 2018.

The slide in mortgage applications came in spite of the downward trend in mortgage rates in recent weeks, with rising concerns over the economic outlook and the sell-off in the U.S equity markets likely to be giving prospective buyers a reason to hold off for now, with hopes of lower rates also likely to be a contributory factor.

For the week ahead, it’s particularly quiet Christmas week, on the data front at least, with October house price figures out of the U.S on Wednesday being the first set of stats for the markets to consider.

November new home sales and December consumer confidence figures will have some influence on yields on Thursday, though it may well continue to boil down to chatter from Capitol Hill, an extended government shut down being just more angst for a market in recoil mode, which could provide further relief on mortgage rates.