U.S Mortgages – Down 3-weeks in a Row as Trade Hits Risk Appetite

Mortgage rates fell for a 3^rd consecutive week in the week ending 5^th July, with the downward trend seeing rates now down in five of the last six weeks, according to figures released by Freddie Mac.

The fall in rates to levels not seen since mid-April, came off the back of market jitters over trade, as U.S President Trump looks to deliver the U.S with fairer trade terms in support of the U.S economy.

A material shift in risk appetite in recent weeks continued to see buying demand for U.S Treasuries, driving yields lower, which ultimately pinned back mortgage rates, halting the upward momentum seen through the early part of the 2^nd quarter and most of the current year.

While the slide in rates will have provided much relief to prospective home buyers and those looking to refinance existing mortgages, the reality remains that rates are still well above levels seen late last year and, more importantly, the window of opportunity to take advantage of the current downward trajectory may well be narrowing and all for the wrong reasons.

Under normal conditions, a downward trend in mortgage rates would be well received, but when attributed to a negative outlook towards the U.S and global economy, there may be trouble ahead for prospective home buyers looking to get on the property ladder or upgrade.

The ongoing trade war is unlikely to protect the U.S economy and the U.S manufacturing sector for that matter and, with June’s wage growth figures failing to impress, following some impressive June ISM and Markit private sector PMI numbers released through the week, the FED’s cautious stance on the possible impact of a trade war on the U.S and global economy seems well justified.

It’s not all bad if wage growth lacks momentum, but with inflationary pressures continuing to build, the current downward trend in mortgage rates is likely to provide temporary relief at best, with any resolution to the current trade spat between China and the U.S likely to see the markets jump back into riskier assets at the expense of U.S Treasuries that would see mortgage rates back up to year highs.

Freddie Mac weekly average rates for new mortgages as of 5^th July were quoted to be:

• 30-year fixed rate loan decreased from 4.55% to 4.52% in the week, while up from 3.96% a year ago.
• 15-year fixed rates fell from 4.04% to 3.99% in the week, while up from 3.22% from a year ago.
• 5-year fixed rates slid from 3.87% to 3.74% over the week, while up from last year’s 3.21%.

Mortgage Bankers’ Association Rates for the week ending 29^th June were quoted to be:

• Average interest rates for 30-year fixed, backed by the FHA decreased from 4.81% to 4.78%.
• Average interest rate for 30-year fixed with conforming loan balances decreased from 4.84% to 4.79%.
• Average 30-year rates for jumbo loan balances bucked the trend, rising from 4.70% to 4.71%.

Weekly figures released by the Mortgage bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, fall by just 0.5%, following the previous week’s 4.9% fall week-on-week.

The Refinance Index fell by 2% in the week ending 29^th June, partially reversing the previous week’s 4% slide, with the refinance share of mortgages falling from 37.6% to 37.2%, the fall in the share of refinance mortgages resuming through the week.

For the week ahead, it’s a relatively quiet week on the data front, leaving June inflation figures due out of the U.S on Thursday as the key driver for mortgage rates through the week, though it’s ultimately going to boil down to market risk appetite and demand for U.S Treasuries, which will be hinged on the ongoing trade war and much less to do with any upbeat economic indicators.

We’ve seen the global financial markets be far more responsive to weak economic indicators of late than upbeat data, reinforcing the general view that trade wars are bad and will likely hurt, not only the economies of those in the midst of the trade war, but those in the periphery.

It remains to be seen whether the downward momentum in U.S mortgage rates can continue. The reality for those looking for a mortgage is the fact that labour market conditions and the U.S economy may actually begin to show some weakness in the event of an extended trade war, which would offset any benefit of falling mortgage rates to those looking to purchase or refinance.

The numbers may be small today, but with inflation on an upward trend, mortgage rates much higher than a year ago and wage growth positive, but not inspiring, disposable incomes could tighten in the coming months and lenders will be conscious of current delinquency rates and an eagerness to avoid falling back into the abyss.